Florida Probate & Trust Litigation Blog : Florida Probate Litigation, Will Contest Lawyer & Attorney : Juan C. Antúnez : Serving Miami, Jacksonville, Tampa Saint Petersburg, Orlando, Fort Lauderdale

Hill v. Davis, --- So.3d ----, 2010 WL 1347314 (Fla. 1st DCA March 31, 2010)

In civil litigation you usually have years to file your complaint: most statue of limitations periods fall within a range of 2 to 6 years. Not surprisingly, most civil litigators assume the same rules apply to probate litigation. Big mistake! In probate litigation your statute of limitations period can be as little 30 days, with the norm being 3 months. These ultra-short limitations periods are unforgiving traps for the unwary and - not surprisingly - a recurring topic on this blog [click here, here].

Personal Representative Disqualification Motions:

In this case, the issue was whether the 3-month statute of limitations period contained in F.S. 733.212(3) applied to personal-representative disqualification motions. In contested probate proceedings the party serving as personal representative has significant advantages. So knowing when the window of opportunity closes to file a disqualification motion is very important.

According to the 3d DCA in Angelus v. Pass, 868 So.2d 571 (Fla. 3d DCA 2004), a case I wrote about here, the answer is NO, this 3-month statute of limitations period does NOT apply. In the linked-to case above, the 1st DCA comes to the opposite conclusion, explicitly rejecting the 3d DCA's ruling in Angelus and certifying a conflict between the DCAs.

[W]e disagree with the sweeping holding in Angelus because it effectively renders part of section 733.212(3) meaningless. . . . The statute clearly states that interested persons such as appellant “must object to ... the qualifications of the personal representative” within three months of the service of the notice of administration or such an objection is “forever barred.” A claim that a nonresident is not qualified to serve as a personal representative pursuant to section 733.304 is an objection to “the qualifications of the personal representative” and should be subject to the clear and unambiguous provisions of section 733.212(3). . . . Contrary to the Third District's decision in Angelus, we find nothing in Florida Probate Rule 5.310 or sections 733.304 and 733.3101, Florida Statutes, which would preclude the application of the three-month statute of limitations period contained in section 733.212(3) to appellant's claim that appellee was not qualified to serve as a nonresident personal representative pursuant to section 733.304 where the factual basis for the claim was known to appellant and could have been raised within the three-month period. This is not a situation where the factual basis for the claim of disqualification was concealed from appellant or arose after the three-month period had expired. Because appellant's motions to disqualify appellee as personal representative were time barred under section 733.212(3), we affirm the trial court's denial of the motions on that basis. We also certify conflict with Angelus.

Lesson learned?

If your client is contemplating a personal-representative disqualification motion, you have to assume the 3-month statute of limitations period contained in F.S. 733.212(3) applies (unless you're in the 3d DCA). If your case is being litigated in a court that doesn't fall under either the 1st DCA or the 3d DCA, you now have two different approaches you can argue depending on what side of the case you're on.

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Steve L. Zimmerman of Zimmerman, Zimmerman & Miceli, P.A., in Pompano Beach, Florida, was on the winning side of Yawt v. Carlisle, --- So.3d ----, 2010 WL 1879697 (Fla. 4th DCA May 12, 2010), a case I wrote about here involving when a new complaint has to be filed in on-going trust litigation.

I invited Steve to share some of the lessons he drew from this case with the rest of us and he kindly accepted.

[Q] What strategic decisions did you make in this case that were particularly outcome determinative at the trial-court level? On appeal?

[A] I became involved in this case only after a default and default final judgment had been entered against my clients, who had been proceeding pro se up to that point. The situation was very dismal, but the fact that the other side was seeking some new relief gave us a small "opening" that we hoped to exploit. It was quite clear that the attorneys, all seasoned probate practitioners, as well as the judge, perhaps out of habit, just sort of handled this trust case like it was a probate case, and thus misapprehended the effect of the default and the finality of the previous judgment. The only thing I had the opportunity to do at the lower court level was to go in an "make the record." Sometimes this is a bit uncomfortable, particularly when you are dealing with very experienced and reputable probate attorney's who you see in court every day, and the former chief judge of the circuit. But sometimes you just have to do it.

[Q] Would you have done anything differently in terms of framing the issues for your probate judge? 

[A] I don't think so. The appellate opinion made a point of mentioning that the appealable issue had been properly preserved.

[Q] From your perspective as probate litigator, do you think there's anything that could have been done in terms of drafting the Land Trust at issue in this case or some other form of estate planning to avoid this litigation or at least mitigate its financial impact on the family?

[A] The appellate decision involved strictly the procedural issues. The substantive issues in this case remain to be determined. But the issues in this case will center upon what the duties of a trustee are, with respect to real property, once the beneficiaries are all adults and sui juris, and the trust purpose has been satisfied. Should the Trustee just execute the trust by conveying the property to the adult beneficiaries and then let them argue amongst themselves, or should the trustee sell the property and split up the proceeds? Obviously, some clearer drafting could have resolved these issues, but in this case, we don't have that clarity.

[Q] Any final words of wisdom for probate lawyers of the world based on what you learned in this case?

[A] Trust cases are not probate cases. This is a double edged sword. Courts do not have continuing jurisdiction to supervise the administration of trusts like they do in probate cases - nor should they. With Trusts, you get in - get your ruling on a specific issue - and get out. One of the main reasons we use revocable living trusts is for probate avoidance. If your decedent wanted the court involved in his/her estate's business he/she would not have made a living trust...

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Yawt v. Carlisle, --- So.3d ----, 2010 WL 1879697 (Fla. 4th DCA May 12, 2010)

In probate proceedings you don't need to file a new complaint every time you want your probate judge to rule on some new issue. Why? Because probate is an in rem proceeding where the Florida Rules of Civil Procedure generally don't apply. That's NOT how it's supposed to work in trust litigation. Subject to a few clearly-defined exceptions, F.S. 736.0201 says "proceedings concerning trusts shall be commenced by filing a complaint and shall be governed by the Florida Rules of Civil Procedure."

Probate Custom vs. Trust Litigation

Here's the problem: most trust litigation takes place before probate judges, and probate judges are - quite naturally - accustomed to playing by the rules that apply to probate proceedings, NOT the Florida Rules of Civil Procedure applicable to trust litigation. This clash between probate-court custom and the procedure governing trust litigation is at the heart of what went wrong in the linked-to case above.

In the linked-to case above the probate judge entered a final judgment approving the sale of trust property. After this final judgment was entered, the purchaser received the results of its environmental inspection and declined to close under the approved agreement. The trustee and potential purchaser negotiated and entered into a new contract, which significantly reduced the purchase price and extended the closing date. The trustee then sought court approval of the new agreement by filing an unsworn “Petition for Approval of Amended Contract.”

This approach could work in a probate proceeding, but NOT in trust litigation. Here's how counsel for the objecting beneficiaries, Stephen Zimmerman, argued this point:

MR. ZIMMERMAN: ... The current proceeding that's before the Court right now was initiated by a motion in a case that's already closed and then by only a couple of days notice without even a chance to respond. We're not even having an evidentiary hearing, we're just having attorneys argue about this, so it's entirely inappropriate for the Court to dispose of this matter in a summary way like this without an evidentiary hearing, without a new case being filed, without a pleading.

THE COURT: What would be the purpose of an evidentiary hearing, what are we going to establish?

MR. ZIMMERMAN: Establish whether this is a fair price for this property. I mean, the Court is just relying upon attorneys coming in here and talking. We think this is not a fair price for this property....

New claim = New pleadings

Mr. Zimmerman was right, of course. No pleadings, no discovery, no evidence: that's not the way to try a case. Unfortunately the probate judge didn't see it his way and ruled against him. Wrong answer says the 4th DCA. Here's why:

Appellants rely upon the provisions in Florida Rule of Civil Procedure 1.110(h) for their argument that appellees needed to file subsequent or supplemental pleadings for the relief they sought. This rule provides as follows:

When the nature of an action permits pleadings subsequent to final judgment and the jurisdiction of the court over the parties has not terminated, the initial pleading subsequent to final judgment shall be designated a supplemental complaint or petition. The action shall then proceed in the same manner and time as though the supplemental complaint or petition were the initial pleading in the action, including the issuance of any needed process. This subdivision shall not apply to proceedings that may be initiated by motion under these rules.

Fla. R. Civ. P. 1.110(h).

The Committee Note to this rule states, in pertinent part:

Subdivision (h) is added to cover a situation usually arising in divorce judgment modifications, supplementary declaratory relief actions, or trust supervision.... The last sentence exempts post judgment motions under rules 1.480(c), 1.530, and 1.540, and similar proceedings from its purview.

Fla. R. Civ. P. 1.110(h), Committee Note, 1971 Amendment.

Appellants argue that appellees failed to comply with this statute and that the trial court erred in granting relief based on their mere filing of a petition. They sufficiently preserved this issue for appeal, as they similarly argued below that the case was not procedurally ripe because appellees did not file a new pleading or afford them an opportunity for discovery and an evidentiary hearing.

*     *     *     *     *

Because appellees have sought different relief than that originally pled, they were required to re-serve appellants in the same manner as they did originally and give them a new opportunity to respond ...

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Hall v. Maal, --- So.3d ----, 2010 WL 1212794 (Fla. 1st DCA March 30, 2010)

Just because someone says they were married to the decedent, doesn't make it so. In contested probate proceedings you simply can't take this fact for granted; the economic implications are too big. A surviving spouse has [1] the right to homestead property (at least a life estate in the decedent's homestead residence), [2] a right to an elective share (30% of the decedent's augmented elective estate), [3] a right to take as a pretermitted spouse (up to 100% of the estate under Florida's laws of intestacy), [4] a right to a family allowance, [5] a right to exempt property, and [6] priority in preference in selecting a personal representative. In addition, as I recently wrote here, Florida courts have long held that a presumption of undue influence in a will contest "cannot arise in the case of a husband and wife" because the requirement of active procurement would almost always be present.

So how do you "test" the validity of a marriage?

The 1st DCA made clear in the linked-to case above that determining if a couple "acted" married is NOT the way to test a marriage's legal validity. In this case the couple had a formal wedding ceremony, lived together, had children together, walked around telling anyone who would listen they were man and wife, executed a mortgage as husband and wife, and in all other respects "acted married," but they never got around to getting a marriage license. So were they "legally" married? NO says the 1st DCA. Why? Because 741.211, Florida Statutes (2002) says common-law marriages aren't valid in Florida. So if you don't have a marriage license, you're not married.

Acting Married

If there were ever two people who acted married, it was the couple in this case:

Ms. Hall and Dr. Maal were engaged to be married on March 2, 2002, at Old Christ Church in Pensacola. Leading up to their wedding date, they went through many of the familiar activities of those who intend to marry. They arranged for the church, engaged a minister, sent out invitations, arranged for flowers and a photographer, and attended pre-marital counseling. They attended at least two wedding showers. And, as some couples do, they started to work out a pre-nuptial agreement.

The week before the wedding, the couple was scheduled to go to the office of the county court clerk to get a marriage license. However, on that day, Dr. Maal called Ms. Hall at work and told her that they were not going to be able to get a marriage license because they had not agreed on the pre-nuptial agreement. Ms. Hall was understandably upset by this-all of the arrangements had been made and many of the guests were already in Pensacola for the ceremony. Dr. Maal persuaded her to go ahead with the ceremony, reassuring her that “everything will be alright.” On March 2, 2002, Dr. Maal and Ms. Hall participated in a full wedding ceremony performed by a minister at the church with numerous family members and friends present, complete with attendants, music, and flowers, and followed by a very nice reception. They did this knowing that they had not ever applied for nor received a marriage license.

In the years following the 2002 ceremony, two children were born of the relationship, Dr. Maal referred to Ms. Hall as his “wife,” and she referred to him as her “husband.” The mortgage on the parties' home referred to them as “husband and wife.” Ms. Hall was referred to as “Mrs. Maal” in her workplace, although she had not legally changed her name. The parties continued to file separate tax returns.

A year after the “marriage” ceremony, the parties appeared before the clerk of the court and applied for and received a marriage license. However, the license was neither solemnized nor returned to the clerk of the court to be made part of the official records of the county.

No Marriage License = You're NOT Married

These two may have walked, talked and looked married . . . but they weren't. As explained by the 1st DCA, in the absence of a marriage license validly "solemnized" in accordance with Florida law: you're NOT legally married.

Since 1967, when the Florida legislature abolished common law marriage, there has been only one method of producing a legally cognizable marriage in Florida. See generally §§ 741.01-.212, Fla. Stat. (2002). Persons desiring to be married are required to apply for a marriage license which can be issued by a county court judge or the clerk of the circuit court. See § 741.01, Fla. Stat. (2002). After issuance, a license is valid for 60 days within which time the marriage must be solemnized. See § 741.041, Fla. Stat. (2002). Marriage may be solemnized by ordained clergy, judges, clerks of court, or notaries public. See § 741.07, Fla. Stat. (2002). After solemnization, the officiant shall certify on the license that the marriage has been performed and deliver it, within 10 days, to the clerk or judge that issued it. See § 741.08, Fla. Stat. (2002). The county court judge and the clerk of the circuit court are required to keep a correct record of all licenses issued and of the licenses returned as certified by the officiant. See § 741.09, Fla. Stat. (2002). There are also provisions for proving up a marriage when the certificate is not completed on the marriage license, when the certified license is lost or when death or other cause prevents a certificate from being made. See § 741.10, Fla. Stat. (2002).

*     *     *     *     *

The parties were not in substantial compliance with Chapter 741. Whether substantial compliance exists is a fact-based inquiry. However, in order for there to be substantial compliance, there has to be some compliance. Some compliance would, at a minimum, entail the parties applying for and receiving a license.

*     *     *     *     *

To the extent that the dissent would hold that a marriage ceremony without a license, coupled with living together and “acting married,” results in a valid marriage, it would recreate a species of common-law marriage in violation of section 741.211, Florida Statutes (2002).

Hat tip to Eric Virgil

Coral Gables probate litigator extraordinaire Eric Virgil recently posted a summary of this case on the list service for the RPPTL section of the Dade County Bar Association. That's how I became aware of it. Thanks Eric.

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Miller v. Kresser, --- So.3d ----, 2010 WL 1779899 (Fla. 4th DCA May 05, 2010)

Multigenerational spendthrift trusts - often referred to as "dynasty trusts" - are fast becoming the cornerstone of modern estate planning. This is not some esoteric issue of interest only to tax lawyers: it's big business. A 2005 study I wrote about here estimated that these trusts attracted over $100 Billion in new assets over a relatively short period of time.

The fact that spendthrift trusts hold vast amounts of wealth and that there's an ever growing number of them means lawyers of all stripes, be they divorce attorneys, bankruptcy attorneys, estate planners or probate litigators, will want to take notice of the 4th DCA's opinion linked-to above. Why? Because it's all about when and how a Florida court will let you crack one of these trusts open and yank out its assets.

4th DCA says trust agreement controls; bad facts irrelevant

A spendthrift trust works as an asset-protection shield because the trustee - not the beneficiary - controls the trust's assets. But what if a creditor proves conclusively that this is not in fact the case? What if regardless of what the trust agreement may say, the actual facts on the ground demonstrate that the beneficiary is exercising complete "dominion and control" over his trust? Under those "bad facts" maybe a creditor should be permitted to pierce a spendthrift trust's asset-protection shield? That, by the way, is one of the most common lines of attack against spendthrift trusts.

To my knowledge the linked-to opinion is the first Florida appellate decision - applying Florida's new trust code provisions governing spendthrift trusts - to state in no uncertain terms that bad facts do NOT matter; the only thing that matters are the words on the page of the trust agreement. If the trust agreement has a valid spendthrift clause, end of discussion, creditor loses; the level of control a beneficiary exerts over his trust is simply irrelevant as a matter of law.

Here's how the 4th DCA summarized the underlying facts and why the trial court allowed the creditor in this case to crack open the target spendthrift trust:

The trial court conducted a non-jury trial .  .  .  at which the relevant issue was whether the spendthrift provision in the James Trust could be invalidated or pierced and the trust's assets executed upon .  .  .  In a written final judgment, the trial court found that the spendthrift provision in the James Trust was valid at the time the trust was settled.

The trial court then set forth a detailed account of James's significant control over the James Trust and over Jerry, as trustee. The court found that Jerry had almost completely turned over management of the trust's day-to-day operations to James. James controlled all important decisions concerning the trust assets, including investment decisions. Jerry never independently investigated these decisions to determine whether they were in the best interest of the trust, and some of the decisions have turned out to be unwise. The trial court concluded that Jerry simply rubber-stamped James's decisions and “serve[d] as the legal veneer to disguise [James's] exclusive dominion and control of the Trust assets.”

Ultimately, the court held that James's exclusive dominion and control over the James Trust served to terminate the trust's spendthrift provision, allowing Kresser to reach all of the trust's assets to satisfy his judgment.

And here's why the 4th DCA said the trial court got it wrong:

While we agree that the facts in this case are perhaps the most egregious example of a trustee abdicating his responsibilities to manage and distribute trust property, the law requires that the focus must be on the terms of the trust and not the actions of the trustee or beneficiary. In this case, the trust terms granted Jerry, not James, the sole and exclusive authority to make distributions to James. The trust did not give James any authority whatsoever to manage or distribute trust property.

*     *     *     *     *

To conclude otherwise would ignore the realities of the relationship between a beneficiary and trustee of a discretionary trust-the beneficiary always pining for distributions which he feels are rightfully his, and the trustee striving to allow only those distributions that coincide with the settlor's express intent, as set forth in the trust documents. It is the settlor's prerogative to choose the trustee she believes will best fulfill the conditions of the trust. In the case before us, it is not the role of the courts to evaluate how well the trustee is performing his duties. We are instead limited, by statute, to evaluating the express language of the trust to determine the extent of the beneficiary's control and the extent to which a creditor may reach trust assets. It is the legislature's function to carve out any exceptions to the protections afforded by discretionary and spendthrift trusts.

So what's it all mean?

First, if you're an estate planner, this case is good for your clients (and good for business): it underscores the rock solid asset-protection values of a Florida spendthrift trust. Second, if you're a litigator defending a spendthrift trust against attack - this case is pure gold! Why? Because it should dramatically reduce the level of uncertainty and expense inherent to litigating this type of case. Rather than having to go through a full blown trial on the purely subjective question of how much beneficiary "dominion and control" is too much; now all you have to do is point to the trust agreement. If it has a valid spendthrift clause, game over, your client wins.

Bonus material

And last but not least, thanks to the excellent work done by counsel on both sides of this case we now have an exhaustive summary of Florida law - both for and against - the "dominion and control" argument for piercing a spendthrift trust.

1. Appellant's Initial Brief
2. Intervenor Appellants' Initial Brief
3. Appellee's Answer Brief

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Kentucky and Florida estate planning lawyer/blogger C. Carter Ruml recently wrote an interesting summary of Robertson v. Deeb, 16 So.3d 936 (Fl. Dist. Ct. App. 2 Dist. 2009), a pro-creditor decision that pokes a hole in Florida's well-earned reputation as an asset-protection haven. The blog post is entitled Creditor Protection Denied for Florida Debtor’s Inherited IRA, and it's well worth reading in its entirety. Here's an excerpt:

KYEstates has been following issues of creditor protection for inherited IRAs closely (see here and here), and we haven’t hidden the fact that on this issue, we’re biased in favor of the debtor. Before today, our series was tied at Debtor 1, Creditor 1. With today’s report, the score regrettably changes to Debtor 1, Creditor 2. The bad news comes in the form of Robertson v. Deeb, 16 So.3d 936 (Fl. Dist. Ct. App. 2 Dist. 2009), a pro-creditor decision that illustrates the risks facing beneficiaries of inherited IRAs seeking creditor protection for their accounts.

*     *     *     *     *

In Robertson, the account holder (Robertson) was sued by Deeb (payee under a promissory note made by Robertson).  The creditor obtained a judgment and served a write of garnishment on RBC Wealth Management, custodian of the debtor’s inherited IRA.  The debtor filed a claim of exemption and argued that the IRA, which the debtor had inherited from his father, was exempt from garnishment under F.S. 222.21(2)(a). [For more on Florida asset protection, consult this KYEstates chart.]

Even though F.S. 222.21(2)(a) protects “money or other assets payable to an owner, a participant or a beneficiary” in a fund or account that is maintained as an IRA pursuant to a plan or governing instrument that is exempt from taxation under certain provisions of the Internal Revenue Code, the trial court found that this statutory protection does not extend to an inherited IRA, and denied the debtor’s claim of exemption.

The Second District Court of Appeals upheld the trial court, concluding that F.S. 222.21(2)(a) “does not apply to inherited IRAs because the plain language of that section references only the original ‘fund or account’ and the tax consequences of inherited IRAs render them completely separate funds or accounts.”

And while we're talking about asset-protection and inherited IRAs, Florida practitioners should take note of an excellent discussion addressing this precise issue in the May/June 2010 editition of the ABA's Probate and Property magazine. In a column entitled Retirement Benefits Planning Update, Detroit, MI estate planning attorney Harvey B. Wallace II discussed the Robertson v. Deeb case and possible "work around" planning options. Here's an excerpt:

The degree to which the creditors of a beneficiary of an inherited IRA have access to the IRA account in a nonbankruptcy context depends on the interpretation of state statutes, which, in many cases, seem on their face protective of inherited IRAs but, when interpreted by the courts, are not. The protective provisions of the BAPA that appear to exempt an inherited IRA from a beneficiary’s bankruptcy estate have yet to be subjected to extensive judicial scrutiny. If an account owner has concerns that the beneficiary or one of the beneficiaries who may inherit all or a portion of an IRA may have creditor problems, the use of a trusteed IRA that restricts post-death distributions and contains a spendthrift clause may, depending on the applicable state law and its interpretation, afford creditor protection. The naming of a properly drafted conduit trust or discretionary trust as the beneficiary of an inherited IRA invokes full protection of the state’s spendthrift law and provides the maximum possible protections from the creditors of a beneficiary of the trust.

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United States v. Guyton, Jr., 2010 WL 1172428 (11th Cir. March 26, 2010)

In this case a father sold his McAlpin, Florida poultry farm in January of 2000 and died six months later. Before his death dad deposited the sales proceeds in a joint account held with his son "Blake." These joint account funds went directly to Blake after dad's death. In other words, none of this cash ever became a part of dad's probate estate. After dad's death another son, "Guyton", was appointed personal representative or PR of dad's probate estate.

As dad's PR, Guyton was responsible for reporting the farm sale on dad's "final" 1040 income tax return and paying the income tax triggered by that sale. Along with this responsibility comes personal liability: as dad's PR, Guyton was personally liable for dad's unpaid taxes. This is all text book tax law, which I've written about here from a risk-management viewpoint and is also summarized nicely in Beneficiary and Fiduciary Liability for Income, Gift and Estate Taxes by Lakewood Ranch, FL estate planning attorney Marc J. Soss.

So what went wrong?

Brother Guyton, who appeared before the court on a pro se basis (in other words, without a lawyer), just could not understand why he was responsible for paying taxes on non-probate funds that went directly to his brother Blake. Unfortunately for Guyton, the IRS didn't buy his "it's just not fair" argument. By the time this case got to the 11th Circuit, the unpaid taxes, penalties and interests Guyton was fighting totaled a little over $50,000.

Here's how the 11th Circuit summarized Guyton's tax argument:

Guyton argues that, because Guyton, Sr. deposited the proceeds from the sale of his farm into a joint bank account prior to his death, the beneficiary of that bank account, Blake Guyton, is liable for the tax on those proceeds as “income with respect to a decedent,” under 26 U.S.C. § 691.

Income in respect of a decedent (IRD) is the name given to all types of taxable income earned, but not received by the decedent by the time of his or her death. If the farm-sale proceeds were IRD, then Blake would be on the hook for these taxes. If the farm-sale proceeds were NOT IRD, then Guyton is on the hook for paying these taxes . . . irrespective of the fact that this cash never flowed through dad's probate estate. The 11th Circuit ruled the farm-sale proceeds were NOT IRD:

When a taxpayer dies during the tax year, his personal representative must file a Form 1040 for the tax year in which the taxpayer died. See 26 U.S.C. § 6012(b)(1). That “final” 1040 will contain all gross income realized by the decedent, but only for the period in which the decedent was alive: the tax year effectively ends on the date of the taxpayer's death. 26 U.S.C. §§ 441(b)(3), 443(a)(2); see also Treas. Reg. § 1.443-1(a)(2) (generally, “the return of a decedent is a return for the short period beginning with the first day of his last taxable year and ending with the date of his death”). Thus, any income realized by the taxpayer after the date of death is “income in respect to a decedent.” See 26 U.S.C. § 691(a), (b); I.R.S. Pub. 559 at 9, 15-16. Accordingly, § 691 is inapplicable for income realized prior to the decedent's death because such income is properly reported on the decedent's final Form 1040. 26 U.S.C. § 691(a), (b); I.R.S. Pub. 559 at 9; Treas. Reg. § § 1.691(a)-1(a), (b) (defining “income in respect to a decedent” as income “not properly includible in respect of the taxable period in which falls the date of his death”) (emphasis added).

Because Guyton, Sr., realized a gain from the sale of his farm prior to his death [and actually received the sales proceeds prior to his death], .  .  .  his estate must pay the tax. Blohm v. C.I.R., 994 F.2d 1542, 1549 (11th Cir.1993). Depositing the proceeds into a joint bank account did not relieve or transfer his obligation to pay taxes on that gain. Id. Thus, summary judgment was proper on this issue and we affirm.

Lesson learned?

Although unstated in the 11th Circuit's opinion, my guess is that Guyton got himself into trouble by distributing most of dad's estate assets to himself and his siblings prior to being absolutely sure all of the estate's tax debts were paid up. As I explained here, there's a lot you can do to limit a PR's personal tax-exposure risk. But the number one most important lesson all PR's need to know is this: never ever distribute estate assets to the heirs until you're absolutely sure you've paid all of the decedent's taxes. Forget that lesson and you'll find yourself in the same boat as the poor PR in this case.

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