Estate of Turco: Is There Clawback For Insufficient Estate Tax Funds?
by James F. McDonough, Jr. on August 15, 2013
The lack of liquidity is a serious problem in the administration of an Estate, especially for a fiduciary with the potential for personal liability. The lack of liquidity can arise from no planning, illiquid assets or an unforeseen change in circumstances or market conditions. Federal estate tax is due nine months after death; however, it may not be possible to sell assets within that period. The dramatic decline in market values after death or the valuation date creates severe problems as seen below.
The New Jersey case, Estate of Turco, illustrates how adverse market conditions can harm an estate. The decedent died in March 2005 (or six months later with alternate valuation) and the appraisals of the estate produced a $30,000,000 gross estate for federal tax purposes. You may recall the tightening of the credit markets in 2007, followed by the collapse of Lehman Brothers in 2008. The estate is obligated to pay an estate tax calculated on asset values that could not be realized in the current marketplace.
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