Estate tax liens help protect the government’s interest in collecting federal estate tax liabilities.
The General Estate Tax Lien
A general estate tax lien arises when a decedent’s estate fails to pay its estate tax liability. The general estate tax lien attaches to all of the property that is included in the decedent’s gross estate. The decedent’s gross estate includes all property owned at death, plus certain other assets over which the decedent had sufficient control.
The lien does not attach to property that is outside of the decedent’s gross estate or property (that is part of the gross estate) that is used to pay court-approved estate expenses.
The general estate tax lien is enforceable for a period of ten years following the decedent’s death.
The Transferee Tax Lien
If the estate tax is not paid when due, then “the spouse, transferee, trustee, surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent’s death, property included in the gross estate” is “personally liable” for the estate tax.
In this event the general estate tax lien then disappears and it is replaced with a transferee tax lien. The transferee tax lien attaches “to all the property of such spouse, transferee, trustee, surviving tenant, person in possession, or beneficiary, or transferee of any such person, except any part transferred to a purchaser or a holder of a security interest.”
The Special Estate Tax Lien
The IRS may also seek to impose a special estate tax lien in certain instances, such as where the estate consists primarily of a closely-held business and it elects to defer payment of the estate tax liability.
Special estate tax liens are “not valid as against any purchaser, holder of a security interest, mechanic’s lien, or judgment lien creditor” prior to their being property secured. The special estate tax lien is in lieu of, not in addition to, the general estate tax lien and transferee liens described above.
An experienced tax attorney can help you determine what if any of you our your family’s property may be subject to estate tax lien and can help structure your financial affairs in a way to minimize the imposition of these types of tax liens.