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Subject Author Date
Who pays the estate tax? Bernie Cosell 09-12-2008
Posted by Bernie Cosell on September 12, 2008, 3:41 pm
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If the assets in an estate go away [e.g., invested in stocks and the value
plunges or a house burns down or something] so that there's not enough
capital left in the estate to pay the estate taxes, who's on the hook for
the difference? The heirs haven't gotten anything from the estate [indeed,
some of the heirs might not even KNOW they've received a bequest], hardly
seems fair for them to have to pay [but then when has 'fair' ever affected
IRS rules..:o)] Could the executor be stuck with the tax bill? (on the
theory that the executor was responsible for the management of the estate
until it is closed)? Can an estate declare bankruptcy? :o).

I know about the dual-valuation [on the date of death and six months
after], but what got me thinking about this was the HUGE plunge of United
stock the other day (or Enron or any stock that vanishes pretty much
overnight): if a lot of the estate's assets were in United stock and the
estate were evaluated *before* the plunge, there might well not be enough
assets left to pay the estate tax. And so who ends up paying it?

I'm starting to think that for volatile assets, what the executor might
have to do to be prudent is liquidate some of the assets [sufficient to
cover the [estimated] estate tax] into something more solid.

/Bernie
--
Bernie Cosell Fantasy Farm Fibers
bernie@fantasyfarm.com Pearisburg, VA
--> Too many people, too few sheep <--

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Posted by Stuart Bronstein on September 12, 2008, 4:55 pm
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> If the assets in an estate go away [e.g., invested in stocks and
> the value plunges or a house burns down or something] so that
> there's not enough capital left in the estate to pay the estate
> taxes, who's on the hook for the difference? The heirs haven't
> gotten anything from the estate [indeed, some of the heirs might
> not even KNOW they've received a bequest], hardly seems fair for
> them to have to pay [but then when has 'fair' ever affected IRS
> rules..:o)] Could the executor be stuck with the tax bill? (on
> the theory that the executor was responsible for the management of
> the estate until it is closed)? Can an estate declare bankruptcy?
> :o).

I think that in a case like this, the IRS would be like any other
creditor of the estate. If the failure to pay was due to the
executor's negligence (e.g. risky investments, failure to have fire
insurance, etc.) then the executor could be on the hook. But
otherwise, no one is responsible - rather no living person is
responsible.

Stu

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<< The foregoing was not intended or written to be used, >>
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Posted by Phil Marti on September 12, 2008, 6:05 pm
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"Stuart Bronstein" wrote:

>> If the assets in an estate go away [e.g., invested in stocks and
>> the value plunges or a house burns down or something] so that
>> there's not enough capital left in the estate to pay the estate
>> taxes, who's on the hook for the difference? The heirs haven't
>> gotten anything from the estate [indeed, some of the heirs might
>> not even KNOW they've received a bequest], hardly seems fair for
>> them to have to pay [but then when has 'fair' ever affected IRS
>> rules..:o)] Could the executor be stuck with the tax bill? (on
>> the theory that the executor was responsible for the management of
>> the estate until it is closed)? Can an estate declare bankruptcy?
>> :o).
>
> I think that in a case like this, the IRS would be like any other
> creditor of the estate. If the failure to pay was due to the
> executor's negligence (e.g. risky investments, failure to have fire
> insurance, etc.) then the executor could be on the hook. But
> otherwise, no one is responsible - rather no living person is
> responsible.

If the estate is insolvent the IRS must get paid first to the extent
possible (31 USC 3713) or the executor can be held personally liable.

I don't know what personal libility problems the executor might face under
state law for not better performing his fiduciary responsibilities. When I
was executor of an Illinois estate that involved only cash bequests the
attorney advised me to convert all investments to cash as soon as I got the
necessary appointment papers from the Probate Court.

--
Phil Marti
Clarksburg, MD

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by bernie on September 14, 2008, 10:10 am
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> If the assets in an estate go away [e.g., invested in stocks and the value
> plunges or a house burns down or something] so that there's not enough
> capital left in the estate to pay the estate taxes, who's on the hook for
> the difference?

Thanks for the info. I guess the simple answer to my question is "the
executor". The executor has a fiduciary responsibility for the assets
in the estate and the IRS [and the heirs, too, I bet] would go after
the executor if the assets disappeared, and the executor would then
have the burden of proving that they acted reasonably and prudently.
Sure sounds like "convert everything to cash as fast as you can" is
the best plan..:o)

/Bernie

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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