Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, September 9, 2013

Judge Declines Clawback Request For Estate with Insufficient Estate Tax Funds

Estate tax

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

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


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