By law enacted by President Obama on December 17, 2010, Congress extended and amended some of the tax laws that would have expired December 31, 2010, through December 31, 2012. When you have a property listed or under contract that involves an estate or assets in probate, you should understand that the possibility exists that the property is subject to federal “estate” taxes.
The federal estate tax is a “secret lien” in favor of the IRS, on all real and personal property of the decedent, and it is not necessary for the IRS to take any specific action or to record any document to give notice of or to enforce that lien. The lien will attach to real property as of the date of the decedent’s death, and will normally last for ten years from that date. However, federal estate taxes are generally not due and will not become a lien on real property if the value of the decedent’s gross estate does not exceed a specified amount. That amount may vary from year to year.
For estates of decedents who died in the year stated in the chart below, no estate tax would be due (and thus no “secret lien” would arise) if the gross value of the estate did not exceed the stated exemption:
In order to close or settle on a property that may be subject to federal estate taxes, one of several things must occur:
1. The estate must have filed its federal estate tax return and paid all federal estate taxes due; or
2. The estate must have obtained a Certificate of Discharge of Property Subject to Estate Tax Lien from the IRS. The process of obtaining this Certificate can be lengthy and time-consuming, and must be done by the Estate’s attorney, accountant, or Personal Representative; or
3. In the absence of 1 or 2 above, a title company or attorney or their underwriter may be willing to escrow all the net proceeds from a sale pending their receipt.
We always recommend you seek out the advice of an independent legal or tax professional with any questions specific to your situation, but hopefully this post arms you with the basic information so you know what questions to ask.
Source: the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (H.R. 4853).
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