J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

37.4 Payments Must Stop at Death

Liability for a payment must end on the death of the payee-spouse. If all the payments must continue after the death of the payee-spouse, none of the payments, whether made before or after the payee’s death, qualify as taxable (to payee-spouse) or deductible (by payer-spouse) alimony. If some payments must continue after the payee’s death, that amount is not alimony regardless of when paid. Note that these rules do not just prevent a deduction for payments made to the payee-spouse’s estate or heirs after the payee’s death, but it may also have the surprising result of disallowing an alimony deduction for otherwise qualifying payments actually made to the payee-spouse. The issue is a hypothetical one: would the payment have to be made after the payee-spouse’s death?

If the answer is yes, the payment is not deductible, regardless of when made.

The divorce decree or separation agreement does not have to specifically state that payments end at death, if under state law the liability to pay ends on the death of the payee-spouse.

To the extent that one or more payments are to begin, increase in amount, or accelerate after the death of the payee-spouse, such payments may be treated as a substitute for continuing payments after the death of the payee-spouse. Such substitute payments will be denied alimony treatment.

EXAMPLES

1. Under the terms of a divorce decree, Smith is obligated to make annual alimony payments of $30,000, terminating on the earlier ...