As a result of a rush to stimulate the economy early in the pandemic, the IRS apparently failed to follow its own procedures (established after recovery from the recession in 2008) and sent 1.1 million stimulus checks totaling $1.4 billion to those who are deceased.  Now the government wants its money back, but how will it collect?  Initially, checks were sent without instructions on how to return funds.  The second wave of checks did have a box to mark if the recipient is deceased and instructed to simply drop the envelope and check in the mailbox – which were sometimes misdirected back to the sender by USPS.  In the last week of June, the IRS posted instructions for returning payments after the Government Accountability Office (GAO) issued a report that the IRS failed to cross-reference federal death records before sending out stimulus checks.

Stimulus Checks sent to deceased

So, if someone deposits the stimulus payment (generally $1200) paid to the deceased or if no one has access to the payment if it was direct deposited into an individual account with no beneficiary designation or if someone collects the payment and is not honest, how will the IRS be able to collect the checks sent in error?  Would it be cost-efficient to spend a lot of time on collection or is that just more bureaucratic waste?  The maximum penalty for forgery under federal law is a $10,000 fine and 10 years imprisonment.

It is uncertain whether or how the government will pursue if someone forges a check, but it is presently reviewing its options.  Under Texas law, if the funds were direct deposited into an individual account that no one has authority to access, then options on how to get to the funds may depend on the size of the account, if the deceased had any debts, and if the deceased had a will.  Sometimes financial institutions will release funds to heirs if the account is small (generally $5000 or less) with the signing of an affidavit of heirship.  If the deceased did not have a will and the estate of the deceased is less than $75,000, then a small estates affidavit and order could be filed with the probate or county court so the funds could be transferred.  In either case, the affidavit would mention if there are existing debts and two disinterested witness generally confirm that affidavit is true and correct.  If the deceased has a will, then the executor would go through the probate process to get letters testamentary so that the funds could be collected and paid back to the government.  If there is no will, then an interested party (including the government, although this would not be cost-efficient) could have an heirship determination and the administrator would have the responsibility of returning the funds to the government (IRS).  However, even if most have the best of intentions, it is conceivable that there will be a large amount that will not be returned, and it will simply be considered dead money.  

If you would like to hear our podcast on this topic, click here.

If you would like to know more, attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

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