What Happens if an Executor Does Not Pay Estate Taxes?

When named as executor of an estate, the executor has a number of responsibilities to care for that estate and make sure it is divided to the heirs. One such responsibility is to pay the taxes on the estate before the distributions even begin. As an executor, you are responsible for filing the State and Federal taxes for the deceased for the year in which they died and for the entire time that the probate matter is pending with the Court.  The obligation to pay taxes can be complicated.  For instance, if the person dies in January of a particular year, the executor will need to file the deceased person’s tax return for January, but the executor may not be able to do so until a year later when it comes time to file taxes for the year in which the decedent died.  Likewise, if the deceased person’s estate continues to receive income through the entire year after he died, then the executor would have to file a tax return to report all of the income that came in after the death. 

It is important for an executor to make sure that all debts – including taxes – are paid before making distributions from an estate to the heirs. However, what if you discover that an executor never paid any estate taxes? Will they be coming after the heirs to take inheritance that they may have already spent?  Like the obligation to pay the taxes, the answer to this question is also complicated.  An executor who fails to pay taxes for the estate can be personally liable for the taxes.  Likewise, if the executor had transferred assets to the heirs, the IRS could seek to recover the taxes from the assets that had been transferred.  In short, an executor’s failure to pay taxes can create significant problems for everyone involved in the estate! 

Unfortunately, estate taxes can be easy to forget and occasionally quite complicated. If you have been named executor and need help handling a difficult estate, contact us today. Ford + Bergner LLP is dedicated helping people navigate the complicated area that is estate and trust law. If you need help planning your estate or resolving difficult estate and trust issues, let us help you.