Estate Tax Lien on Property You Want to Sell or Purchase?
The tax law provides that an estate tax lien automatically attaches to ANY property included in a decedent’s gross estate. For example, if I die with $7 million in my estate and $620,000 of estate tax is due, then an automatic lien is asserted on all my property. Thus, if my personal representative or trustee wants to sell property in my estate, the title company will require evidence that the IRS has discharged such a lien.
To discharge the lien, you much complete and submit the Form 4422- Application for Certificate Discharging Property Subject to Estate Tax Lien (the “Form”). Carefully read the Form, as requirements changed, without notice, in September, 2016.
- Submit the Form at least 45 days before you need the certificate.
- Evidence that the sales price is “fair”.
- Mailing address to which the Form must be submitted.
- Although not specifically required in the Form, the sale proceeds must be either held in escrow or paid directly to the IRS. If the funds are held in escrow, then indicate the escrow agent and the escrow agreement.
- After the Form is processed, then you will receive a Conditional Commitment to Discharge Certain Property from Federal Estate Tax Liens.
If you hold the sales proceeds in escrow, then the IRS requires an escrow agreement be completed. Thank you to my friend, Naples attorney, Laird Lile, who first brought this change to my attention.
ADVICE: If you are a personal representative or trustee and plan to sell estate or trust property, then make sure that this issue is addressed before the closing date! The lack of discharge or an escrow agreement can come up to “bite you” and the buyer and the beneficiaries will be looking to the attorney if the sale does not close. If you are a buyer or beneficiary, then make sure this issue is addressed.
WORD OF THE WEEK: Lien is a right over property which a creditor (in this case, the IRS) has in or over specific property of the debtor, as security for the debt (in this case, the estate tax).
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