Can property be transferred to another person in order to avoid an IRS debt?

My in-laws lived in NC and badly wanted to move to TN to be near their grand babies. So they put their house on the market and it finally sold months after they put it up only for less than they owed. So my mother-in-law took money out of her 401K to buy their new house, which is paid off.Mind you she talked to a financial adviser before taking it out and I’m pretty sure he told her how much it would be in taxes. One month after moving here my father-in-law died because his pancreas went septic. He didn’t have life insurance and she was left with all debts. She doesn’t work; she’s retired and chooses to stay that way. She filed her taxes and found out that by taking that money out of her 401K she now owes over $50,000 in taxes and has a low monthly income/budget. She has no clue how she’s going to pay the IRS back. She has now asked my husband (her son) to put her house in his name so that the IRS can’t take her house if it came down to that. My train of thought is that it would be fine because it’s paid off and wouldn’t affect our credit report because it’s paid for. But something is telling me that it could be bad for us. What if for some reason in the future she can’t pay the taxes, or what if the IRS finds out, and what if they come after us or we get financially obligated to take care of the taxes and it starts messing us up financially. We’re a young, new couple starting out with 2 kids and our first house. Is there anything wrong with doing that for her? What should we do?

Asked on March 15, 2011 under Bankruptcy Law, Tennessee


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

And even with all her deductions for the medical bills she still had to pay that much?  I can see how you would be afraid to deal with the matter and you are wise to consider not transferring it to you.  The IRS can look in to the transfer if it was made so that an asset became unavailable for attachment for a lien, which is what they would do.  Put a lien on the house.  I would suggest that your Mother in Law look instead in to a reverse mortgage or some form of home equity loan to deal with the matter and to pay it off.  If the home has no mortgage then it should be less difficult to do even in this economy.  She may need someone to co-sign for it and then you may have to step up to the plate and make sure that she lives up to the agreement.  Check with your accountant as well.  Good luck.

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