When someone you love passes, there are often many logistics details to sort through on top of the emotional mourning and adjustment that people face. Working through how to handle the loved ones financial commitments and personal/business assets and belongings often becomes the responsibility of others. The below article was written by Sam Saad, a local real estate attorney, to help agents who may be listing properties that are part of estates. I have modified the article slightly with Sam's permission to be appropriate for the general audience in order to provide some high-level considerations if you involved in home sale of a deceased family member.
When there is a real estate transaction that involves a deceased owner, the potential for estate taxes is one of the many issues to be addressed. This is especially true for large estates, whether or not the deceased is a Florida resident.
Florida Taxes
In Florida, Under the terms of the Economic Growth and Tax Relief Reconciliation Act of 2001, any resident or nonresident dying on or after Jan. 1, 2005 is not subject to Florida estate taxes. The same is not true for federal taxes…
Federal Taxes
According to the IRS, the current federal estate tax threshold for when estate taxes are due is $11,700,000 (more than the 2020 threshold of $11,580,000). For example, if a decedent’s taxable estate was valued at $15,000,000, the first $11,700,000 would be exempt and only $3,300,000 of that estate would be subject to federal estate taxes ($15,000,000 - $11,700,000 = $3,300,000).
Federal estate taxes are a lien on the decedent’s property for ten years from the date of death.
Closing Documents
For estates under the threshold, even though the estate is not required to file a federal estate tax return, an Affidavit of No Florida Estate Tax Due (“DR-312”) must be filed with the closing. If a probate has been opened, the DR-312 should be executed by the personal representative for the estate. If a probate has not been opened, the DR-312 can be executed by a surviving spouse or person who is in possession of the property. We will provide the DR-312 at closing if we are working with the seller.
For high value homes, you may have an estate that is subject to federal estate taxes, a federal estate tax lien is imposed the moment that individual dies. This lien does not have to be recorded to be effective and applies to all assets of the decedent’s gross taxable estate. This may include property in which the decedent’s interest was held in a tenancy by the entireties or other non-probated estates.
When the lien of federal estate tax does apply, there are two possible solutions for insuring the property without an exception for the tax lien.
Pay the taxes. An IRS estate tax closing letter establishes the amount payable, and proof that full payment was made prior to closing is required. However, this method can prove to be time consuming and can significantly delay the closing if not done well in advance.
The alternative solution is to obtain a transaction-specific release. To obtain this release, we apply to the IRS using the Application for Certificate Discharging Property Subject to Estate Tax Lien (Form 4422). It is recommended that the application be submitted at least 45 days prior to the date the Certificate of Discharge will be needed to allow for processing the request. So this method can affect your closing timeline.
If property is sold by a surviving spouse where property was held as TBE or JTWROS, to a third-party bona fide purchaser for full market value, the federal estate tax lien on the property will be divested (no longer a lien).
When Property is held by the trustee of a trust settled by the decedent, under which the settlor reserved the right to alter, amend, revoke, or terminate the trust during their lifetime, that property is not be part of the decedent’s probate estate, but would be part of the decedent’s gross taxable estate Therefore, the lien of estate taxes must be cleared as noted above.
Conclusion
Estate tax liens can be tricky and time must be given in the closing to deal with these issues. If you are a Personal Representative of an estate, plan to build enough time into your closing to allow the title agent to get the required releases from the IRS.
NOTE FROM RENEE;
Given that this is a legal matter, we always encourage our clients to talk to a qualified attorney to help with additional information on this topic. If you are in need of a real estate attorney recommendation, please don't hesitate to ask and I am happy to provide options.