Estate issues (Full Version)

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doba -> Estate issues (4/18/2008 2:05:22 PM)

I received an inheritance two years ago and the estate was finally settled and discharged by the court several months ago. We signed a document at the end, stating that all matters had been settled and all taxes and debts had been paid in full. The document was signed by the Judge and we thought that was the end.
Now comes one of the executors to say that taxes are owed on interest and all the heirs need to settle up? We have not received any document or notice from anyone prior to this phone call from the executor.
Can I be liable for taxes after the estate is discharged by the court?



metoo -> RE: Estate issues (4/18/2008 5:04:39 PM)

I'm not sure what the "legal" answer is but the "right" answer is that you should pay it. More than likely the executor is someone who had little or no previous experience serving as an exector. It's not a fun job to have. Often the heirs are pestering for distributions. It's difficult to keep "everyone happy." They receive little or no compensation for a very time consuming, thankless job. I know, I've done it and fortunately there were not any problems.

The judge probably signed off on the estate tax portion of things but probably not on the actual income taxes due for the estate as a separate entity.

The exector probably made the final distributions without taking the final income taxes for the estate into consideration. Typically an estate (as a separate tax paying entity with its own taxpayer ID) has to pay income taxes when the amount of income to the estate exceeds $600 in a year. The executor may have ensured the actual estate taxes for the estate tax return were paid (and that's probably what the judge signed off on) but that is different from the income taxes due on the income the entity of the estate incurred.

My guess is the amount of tax due is very minimal when compared with the amount of the inheritance. The lawyers and/or accountants that were helping this person may have neglected to have him or her hold back an amount for income taxes or the executor, a likely "layperson", may not have understood the process. Regardless of what actually happened I think you should ante up the portion you are being asked for and be grateful you did not have to be executor and have to deal with all of these tasks and people.



doba -> RE: Estate issues (4/19/2008 10:18:50 AM)

Here is some additional information, that may shed some more light on the situation.
One of the executors is the lawyer's secretary. This is also the lawyer who handled the estate. She also is an heir to this estate and another estate in the family, all at the same time. The taxes brought up recently are supposedly interest income on the trust, set up until the estate was finally settled. I have paid the Federal income tax on my interest earned in 2006 and 2007. I received the documents from the entities who paid me the interest, showing the amounts supplied to the IRS.
I pay whatever I owe, especially taxes. I just don't want to be tricked into something I don't owe. I shouldn't be taxed on interest income I never received.



Ps103 -> RE: Estate issues (4/19/2008 9:41:10 PM)

quote:

We signed a document at the end, stating that all matters had been settled and all taxes and debts had been paid in full.


I think I would contact another attorney just to make sure.



P31W -> RE: Estate issues (4/21/2008 8:38:45 AM)

quote:

I think I would contact another attorney just to make sure.


I second this. Find an estate attorney You don't want to play around with Uncle Sam. (interest clock is ticking) I believe this is called "phantom assessment" and yes that tax must be paid.

Who is responsible for the tax liability? The executor or the estate? You need to consult an attorney and your conscious.

(I am not an lawyer)
.



phreddy -> RE: Estate issues (4/22/2008 8:48:16 AM)

If the estate was settled in 2007, a final income tax return would have to be filed for 2007 by April 15. If the estate was settled in 2008, a return would have to be filed for 2007 and the final return would be filed in April of 2009. The estate is responsible for the taxes unless is was setup as a trust that distributed all earnings to the beneficairies through K-1's. The executor is merely the indiviudal responsible to see that all legal and financial obligaions of the estate are met. The executor would be like the treasurer or CEO of a company. The treasurer would not pay the company's income taxes out of his own pocket, but would make sure that the company pays it taxes out of company funds. If you doubt the amount of tax due or your share of it, ask to see the income tax return that was filed for proof. Falsifying income tax returns is a pretty serious crime, and that should be enough deterrant for most people



P31W -> RE: Estate issues (4/22/2008 9:03:49 AM)

quote:

The treasurer would not pay the company's income taxes out of his own pocket, but would make sure that the company pays it taxes out of company funds.


I am not sure about this. I believe they can be held responsible at times. I believe Metoo has that feeling as well.

This estate has already been settled.

Publication 559 "may' LOL help shed some light on this.



phreddy -> RE: Estate issues (4/22/2008 9:41:48 AM)

The way I read publication 559, is that the IRS may pursue the executor for unpaid taxes bacuase it is the executor's responisbility to see that they are paid. Estate taxes are paid from estate funds and should have been held back from the final distribution. The beneficiaries got larger distributions bacause of the executor's mistake. The benficiaries could stiff the executor and she would have to pay legally, but morally/ethically the money should come from the beneficiaries. If the executor showed me the tax return where taxes where due, I would pay my share to her.



P31W -> RE: Estate issues (4/22/2008 10:07:06 AM)

That's the way I understood it as well.

From a legal point of view it's the executor's responsibility to pay the taxes.

From a moral point I view I am not sure. The executor was paid to preform certain duties.



phreddy -> RE: Estate issues (4/22/2008 10:34:30 AM)

I personally would assume it was an honest mistake and would pay whatever taxes would have normally been withhled from my distribution. If there were any interest or penalties due to the executors mistake, I would expect the executor to pay for those, but I could see how others might see otherwise.



P31W -> RE: Estate issues (4/24/2008 11:41:30 AM)

phreddy,

I have been thinking about this. The IRS is going to pursue the executor. That does not necessarily mean the exector cannot pursue the individuals involved in the estate? I don't know if they have the legal right to do that or not.

They may have that right.

(I understand why the IRS is going after the executor....but I am not sure that's the "end" of the case)



phreddy -> RE: Estate issues (4/24/2008 11:49:36 AM)

It is possible that the executor could persue the beneficiaries. Receiving a check does not mean that you are entitled to the money. It probably would depend on state laws. In a case I am familiar with, an employee received a direct deposit paycheck for about 6 months that was about 2 times his salary and proceeded to spend it it all with out telling his employer. The employee was required to pay it back.



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