Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

EXECUTORS MAY BE PERSONALLY LIABLE FOR A DECEDENT’S UNPAID TAXES

This is a reoccurring issue that Personal Representatives/Executors of a probate estate need to be educated on. The First Circuit recently ruled that the executor of an estate was personally liable for unpaid federal income tax when she knew, prior to distributing property from an insolvent estate, that there were outstanding tax deficiencies. The decedent owed $340,000 in unpaid federal income tax, which would have left his estate insolvent. The transfer took place right after the decedent's death and prior to their appointment as executor. The transfer was made despite IRC Section 3713(a)(1)(B) which provides that a claim of the U.S. government shall be paid first when an estate is insolvent (it has priority over any other claims). If the executors fail to honor that priority, they become personally liable for the deficiency under Section 3713(b) if three requirements are met: (1) they transfer assets before paying the government’s claim; (2) the estate is insolvent; and (3) they had knowledge of the liability. The executor's argument, against personal liability, was that the transfer occurred prior to her appointment as executor and a strict reading of the statute found it applied to “a representative of the person or an estate…” The court said that whether she had actually been appointed executor at the time was irrelevant because the assets were under her control at the time they were transferred.