Limiting Liability When Serving as a Personal Representative (Executor)

Family members are often appointed to serve as the Personal Representative (or Executor) of a loved one's estate. This role can be extremely challenging, especially in instances where its discovered that the person's financial affairs are in disarray. One all-too-common scenario, for example, is finding out that the loved one failed to file taxes for years leading up to their death.  What many people do not know is that the Personal Representative can actually face personal liability as a result...

A Personal Representative is personally liable for a decedent’s unpaid income taxes if the Personal Representative 1) knew the debt existed and 2) distributed the estate without first paying the taxes. See Code § 6901(a) and 31 U.S.C. § 3713(b).

How do you find out if the debt existed? The Personal Representative must first file a Notice of Creation of Fiduciary Relationship, also known as IRS Form 56. This notice tells the IRS that any and all documents related to taxes should be mailed to the Personal Representative and not to the decedent’s last known address.

Next, the Personal Representative should request tax returns for the decedent, for at least three years leading up to death. This is done by sending the IRS an executed Form 4506. The Personal Representative should communicate with the IRS to determine whether or not taxes are owed.

Feeling overwhelmed? Let Altman & Associates guide you through the process. We work with accountants almost daily to file unfiled returns, file final returns, and assist Personal Representatives through the estate administration process. Most importantly, we help the Personal Representatives avoid personal liability due to what they believe are unexpected requirements and unknown procedures.

- Aubrey Mirkin, Esq.

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