Source: https://trustbclp.com/trustees-and-personal-representatives-left-holding-the-liability-bag/
Timestamp: 2019-04-25 04:31:38+00:00

Document:
The Defendant Heirs’ motion to dismiss is based on their denial that they are either a “transferee” or “beneficiary” within the meaning of § 6324(a)(2) of the Code, so that they are not subject to transferee liability as trust beneficiaries even though they received distribution of all of the trust assets.
Surprisingly, the Court agreed with the Defendant Heirs, finding that the term “transferee” in § 6324(a)(2) refers only to those who are in possession of the decedent’s property at the time of the decedent’s death or receives such property immediately after such death. “Transferee” does not refer to a person who receives property included in the decedent’s gross estate regardless of the time when he or she receives it. The Court found the provisions of § 6324 ambiguous as to the meaning of “receives”, and where a tax statute is ambiguous, the court must resolve the ambiguity in favor of the taxpayer. The use of the term “transferee of a transferee” in the second sentence of § 6324(a)(2) in connection with special liens, bolstered the Court’s view that the Defendant Heirs were not “transferees”. To find otherwise would have violated the Court’s view of statutory construction, that Congress could have used that phrase in the first sentence imposing the transferee liability, did not do so, and therefore, did not intend such phrase to apply to the first sentence. Therefore, the Court found that the Defendant Heirs were not transferees within the meaning of § 6324.
The Court then examined whether the Defendant Heirs were “beneficiaries” within the meaning of § 6324(a)(2). The Court found that Congress intended this term to refer only to insurance beneficiaries and did not apply to trust beneficiaries.
The Court, therefore, granted the Defendant Heirs’ motion to dismiss the government’s action against them as transferees under §6324(a)(2). (While § 6901 of the Code may not suffer from the same ambiguity as to the collection of the estate tax liability from a transferee of a transferee, the government was not pursuing collection under that section of the Code, because the government had never assessed the tax against the Defendant Heirs and the statute of limitations had run as to collection of any transferee liability pursuant to § 6901(c).
The Defendant Fiduciaries were not so fortunate in achieving a dismissal of the government’s action against them under the Federal Priority Statute, 31 U.S.C. § 3713, which imposes personal liability on fiduciaries who pay a debt or make a distribution before paying a claim of the government. The Defendant Fiduciaries claimed that they could not be liable under the Federal Priority Statute because the estate had sufficient assets when the distribution occurred as a result of the Distribution Agreement entered into by the Defendant Heirs, whereby they each agreed to pay the remaining estate tax liability. The Court held that the duty of an executor of an estate to pay the estate tax cannot be delegated, so that the Federal Priority Statute does not require the government to recognize this attempted delegation of the Defendant Fiduciaries.
So long as the estate tax remains unpaid, the fiduciaries will need to retain assets in the estate/trust to pay those taxes, or risk personal liability for the same.

References: § 6324
 § 6324
 § 6324
 § 6324
 § 6324
 § 6324
 §6324
 § 6901
 § 6901
 § 3713