Judge Declines Clawback Request For Estate with Insufficient Estate Tax Funds

Not having enough liquidity can be a problem forthe executor in an estate administration. The problem stems from poor planningilliquid assets and other non-forseeable changes in the market. Federal estatetaxes are due nine months after the decedents death. Despite the nine-monthdeadline, it may not be possible to sell enough assets in that amount of time.

A New Jersey case Estate of Turco, shows how themarket can do some damage to an estate. The decedent died in 2005 and theappraisals for the estate were $30,000,000. The estate had to pay the taxcalculated on asset values that the estate would not receive in the marketplace. However, there was a 4.5 million dollar life insurance policy paid outto the grandchildren. Additionally, the will wanted the taxes paid out from theresiduary estate. The court instructed that the executor try to negotiate withthe IRS before asking the court for a clawback. The court reasoned that theexecutor did not have authority under state law to get the money for the estatetaxes from non-probate assets. Moreover, the will was specific in how the estatetaxes were supposed to be paid. If the IRS refuses to negotiate it may push theexecutor to clawback money from the trusts. 

See James F. McDonough, Estate of Turco: Is There Clawback For Insufficient Estate Tax Funds?, JDSupra Law News, Aug. 15, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.