Beneficiary and Fiduciary Liability: Part Three

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TRANSFEREE LIABILITY

Estate and Trust Taxes:

Every estate and trust beneficiary (heir, legatee, and devisee) must be appraised of their potential for personal liability for unpaid estate taxes under IRC §6901(a)(1) (probate estate) and §6324(a)(2) (non-probate assets included in the decedent's gross taxable estate).  Pursuant to IRC §6901, the liability of a transferee is similar to that of the transferor under §3713. A beneficiary’s transferee liability will be limited to the value of assets transferred to them (Commissioner v. Henderson's Estate, 147 F.2d 619 (5th Cir. 1945)). 

Gift Taxes:

Under IRC §2501, a donor (party making a gift) will bear primary responsibility for paying any tax liability associated with a gift.  This will not preclude a donee, under IRC §6324, from being held liable for the applicable gift tax.  Transferee liability will hold the donee personally liable for the applicable gift tax (the donor's tax deficiency), up to the value of the gift, even if the gift received did not contribute to the unpaid gift tax liability (U.S. v. Botefuhr, 309 F.3d 1263 (10th Cir. 2002).

IRC § 6324 further provides that the tax lien shall remain in place for ten-years from the date the gifts are made. The liability will immediately arise once the donor fails to pay the applicable gift tax (Poinier v. Commissioner, 858 F.2d 917 (3d Cir. 1988)).

FLORIDA PROBATE LAW

Under Florida law, a claim for federal taxes (income, estate or gift) will not be subject to F.S. §733.702, §733.710 or the requirement that a creditor claim be filed in probate proceedings (U.S. v. Stevenson, 2001-2 USTC ¶50,371 (M.D. Fla. 2001)).  The IRS can provide notice of the tax liability to the fiduciary by sending Form 10492. The federal tax obligation will then receive preference over all other claims against and obligations (state inheritance taxes, and other expenses) of an estate (Rev. Rul. 79-310, 1979-2 C.B. 404). As a result, even if the IRS fails to file a claim against an estate, the Fiduciary should actively assert the U.S. Government’s priority under IRC §3713.

Florida Statutes:

Florida Statutes §733.801 and §733.802 may be utilized to protect a Fiduciary by limiting the circumstances under which they will be required to either pay or deliver a devise or distributive share to a beneficiary.  The limitations include: (i) not earlier than five (5) months after the granting of letters of administration; and (ii) compelled, prior to final distribution, to pay a devise in money, deliver specific personal property, unless the personal property is exempt personal property. Even then, unless the beneficiary establishes that the assets will not be required for the payment of estate and inheritance tax, a claim (debts, elective share, expenses of administration, etc.), provide funds for contribution, or to enforce equalization in case of advancements.  If the administration of the estate is not completed before the entry of an order of partial distribution (devise, family allowance, or elective share) a court may require the beneficiary to post a bond with sureties and require them to make contribution, plus interest, if it is later determined that there are insufficient assets.   

Homestead Property:

Federal tax law, accept as provided under IRC §6334, Property Exempt from Levy, will preempt Florida’s exempt property statutes and constitutional homestead protection laws. The preemption will allow the IRS to impose a federal tax lien or levy on personal assets of an estate or trust for collection (In Re Garcia, (S.D. Fla. 2002) or homestead property (Busby v. IRS, 79 A.F.T.R. 2d 97-1493 (S.D. Fla. 1997)). 

IRC Section 6331 permits the United States to collect taxes of a delinquent taxpayer by levy on all property and rights to property unless exempt under section IRC §6334. IRC §6334 specifically provides that a “principal residence shall not be exempt from levy if a judge or magistrate of a district court of the United States approves in writing) the levy of such residence.”

Under Florida law, a Fiduciary is obligated to notify the county property appraiser of a decedent’s death and their property’s ineligibility for the homestead tax exemption.  F.S. §193.155(9) provides that a Fiduciary’s failure could result in the assessment of penalties and interest. In addition, if the property was not entitled to a homestead property tax exemption, the statute provides for the imposition of: (i) a lien against the real property; and (ii) imposition of taxes, interest, and a penalty equal to fifty (50%) percent of the unpaid taxes resulting from the incorrect classification.


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