Received final distribution, now Rep says each heir must pay taxes

[methree]

What is the name of your state?

The Estate was probated in Maryland. Heirs live in various states.

My grandmother died 2 years ago. I and several family members are the heirs. The representative, who is my aunt, made a series of distributions to each of the heirs. She held money back to pay the taxes and expenses. Then she made a final distribution to everyone about a year ago. She handled things with the advice of an Estate attorney who prepared the tax forms for her and advised her when to distribute what and how much to hold back.

Now, she has received from the attorney some tax forms--one for each heir. She was told by the attorney that there is a tax liability on the estate and it is to be divided among the heirs according to percentage of the estate they received.

The representative was told that this is a liability on taxes that were never paid on my grandfather's 401K. When my grandfather died several years ago, my grandmother was the beneficary to his 401K. The 401K made up the bulk of her estate.

My grandfather was 76 when he died and my grandmother was 83 when she died. So some distribution had to have been taken by them at some time.

Question #1 Once an heir has received final distribution (over a year ago) can they be liable for these taxes?

Question #2 It sounds to me like the lawyers messed up by letting this get by them. Shouldn't taxes have been paid before distribution was made?

Question #3 Does the representative or the heirs have any recourse to damages to a mistake made by the estate lawyers?

Question #4 Once a representative makes final distribution, and now finds out taxes were due, can the representative be held responsible to pay them?


Thank you for answering my questions.

Methree

 

[Dandy Don]

I'm not familiar with Maryland law but am just offering some general comments about your situation.

What kind of taxes are being requested here--is it federal tax or state taxes or both? Please check with a CPA or tax accountant to find out for sure how this federal and state tax liability can be taken care of.

1. Yes a heir can be liable for taxes. If you received the distribution/benefit of having the money, then you are also responsible for the taxes, even though they should have been deducted before you received the money.

2. Yes, it seems the lawyers made a mistake by letting this get by. Did the aunt/representative have available the services of a lawyer for consultation/advice? However, in fairness to the aunt, this is an innocent mistake that is frequently made out of ignorance.

Also seems like the IRS messed up somewhere also. Usually, as soon as they receive notice that the distribution was made, they immediately send out a tax notice to the person who received the distribution to request taxes be paid. Just for your own protection you may want to look at the grandmother's probate file to see if an estate tax return was submitted and an examination of the return might mention whether or not the 401K taxes have or have not been accounted for. If there is no estate tax return in the file, then only the executor has the right to request a copy of the estate tax return from the IRS and the last personal tax return as well.

3. Do you recall signing any form when you received your distribution that relieved the administrator from any type of liability? You may want to go to the courthouse to review the grandmother's probate file to see if an executor's bond was posted in this estate--if there was, then it might be possible for the heirs to file a claim with the bonding insurance company to recover the amount of the tax liability.

4. You may want to consult with an attorney about possibly filing some type of small claims or civil lawsuit to recover from the representative the amount of tax liability.

DANDY DON