Holding children responsible for the debt incurred by their parents is a feature of historical feudalism and a few modern third-world shitholes.
Developed countries, by and large, assume that a debt dies with the person who willingly incurred it, or at least stops with his or her estate. "By and large," I write, because the U.S. government has broken with centuries of tradition holding individuals responsible for their choices, opting to withhold tax refunds from children whose parents incurred vague and often ill-documented obligations to the feds.
A few weeks ago, with no notice, the U.S. government intercepted Mary Grice's tax refunds from both the IRS and the state of Maryland. Grice had no idea that Uncle Sam had seized her money until some days later, when she got a letter saying that her refund had gone to satisfy an old debt to the government—a very old debt.
When Grice was 4, back in 1960, her father died, leaving her mother with five children to raise. Until the kids turned 18, Sadie Grice got survivor benefits from Social Security to help feed and clothe them.
Now, Social Security claims it overpaid someone in the Grice family—it's not sure who—in 1977. After 37 years of silence, four years after Sadie Grice died, the government is coming after her daughter. Why the feds chose to take Mary's money, rather than her surviving siblings', is a mystery.
Across the nation, hundreds of thousands of taxpayers who are expecting refunds this month are instead getting letters like the one Grice got, informing them that because of a debt they never knew about — often a debt incurred by their parents—the government has confiscated their check.
The new multi-generational debt collection practice required a two-step policy change. One was the elimination of the 10-year statute of limitations on debts to the federal government. The other involves the Social Security Administration insisting that if tiny tots indirectly benefited from public assistance collected by adults decades ago those now-grown ex-tots are responsible for any overpayments the feds may claim.
The elimination of the statute of limitations may, on its face, allow the government to go after individuals responsible for incurring debt, but the longer time horizon means accurate records can be hard to come by. According to Fisher, "Social Security officials told Grice they had no records explaining the debt."
How do you collect a debt that you can't prove exists? Through the sheer grinding weight of the state, of course.
Going after the next generation—which never made the decision to incur a debt to begin with—really is a massive break from previous policy.
Most financial websites advise heirs that they are responsible for parents' debt only if they cosigned loans, held joint accounts, or shared community property with the deceased. Beyond that, the debt adheres to the debtor's estate and may devour any inheritance. The estate belonged to the debtor and passes to heirs only after bills are paid. But the debt stops there.
The Federal Trade Commission (FTC) likewise asserts, "family members typically are not obligated to pay the debts of a deceased relative from their own assets."
The estate of the deceased person owes the debt. If there isn't enough money in the estate to cover the debt, it typically goes unpaid. But there are exceptions to this rule. You may be responsible for the debt if you:
- co-signed the obligation;
- live in a community property state, such as California;
- are the deceased person's spouse and state law requires you to pay a particular type of debt, like some health care expenses; or
- were legally responsible for resolving the estate and didn't comply with certain state probate laws.
The FTC should send a memo over to Treasury and the Social Security Administration to clue them in on modern debt practice. Sure, the government is broke and scrambling for any cash it can find. But reviving feudalistic practices to visit the debts of the parents on sons and daughters should involve perhaps a tad more discussion. Especially if the feds hanker to take the next logical step into debt bondage.
Update: After a little embarrassing coverage, the Social Security Administration suspended efforts to collect old debts on April 14. The official statement from Carolyn W. Colvin, Acting Commissioner of Social Security, carefully stays clear of any mention that they were often trying to collect these debts from the next generation.
I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law to refer debt to the Treasury Department.
If any Social Security or Supplemental Security Income beneficiary believes they have been incorrectly assessed with an overpayment under this program, I encourage them to request an explanation or seek options to resolve the overpayment.