Liability of Executors and Transferees for Estate Taxes - ACTEC Trust & Estate Talk

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[00:06]
A
Liability of executors and transferees for estate taxes that is the subject of today's ACTEC Trust and Estate Talk.
[00:13]
B
Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now, our ACTEC Fellow host with today's topic.
[00:38]
A
This is ACTEC Fellow Travis Hayes of Naples, Florida. Serving as an executor or trustee is both an honor and a significant legal responsibility. Fiduciaries are expected to administer estates and trust carefully, but many are surprised to learn that they may also face personal liability. And if estate taxes are not properly handled and addressed, understanding those risks is essential for anyone serving in a fiduciary role. In today's podcast, ACTEC Fellow Beth Shapiro Kaufman of Washington, D.C. will discuss the potential liability of both executors and transferees for unpaid estate taxes, including important lessons from recent court decisions that we should be aware of. She will also explore practical steps fiduciaries can take to reduce their personal exposure while carrying out their duties.
[01:25]
C
Welcome, Beth thank you, Travis. We might as well have called this podcast why you don't want to be a Fiduciary. Let's start with the basics. So the estate tax is imposed under code section 2001A on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. The zinger comes in the next section code section 2002. The tax imposed by this chapter shall be paid by the executor. This is the first place that we see personal liability imposed on the executor. Now, fortunately, the Code also provides a way for the executor to discharge that personal liability. Code section 2204A says that an executor can make a written application for the determination of the amount of estate tax due. In practice, that's done by filing a Form 5495. The IRS then has nine months to tell the executor that more tax is due than what was reported on the estate tax return. The executor is not personally liable for any tax the IRS determines the estate to owe after that six month period, unless there's been a deferral of tax under 6166 or 6161. So after that six month period, the IRS can still assess tax against the estate they've got three years to do that, but the executor would no longer have personal liability. The Form 5495 can be filed as early as with the estate tax return. Now, some practitioners worry that filing a Form 5495 with the 706 will increase the chances of audit, but I've been assured that by former IRS employees that this is not the case. I also know that the largest trust companies in this country routinely file a Form 5495 with their estate tax returns. So I would urge everyone to file a Form 5495 with their estate tax returns, both to normalize that practice so that nobody is suspicious when you file one with the return and also to get the discharge from personal liability for the executor as early as possible. Other fiduciaries, like the trustee of the revocable trust or trustee of a Q Tip trust, can also file for discharge from personal liability and they use that same form 5495. The result is the same. The process and timing is a little bit different. The application by the non executor fiduciary has to be accompanied by a copy of the instrument under which the fiduciary is acting and a description of the property held by that fiduciary. Their discharge becomes effective on the later of the discharge of the executor or six months after the fiduciary makes the application by filing the Form 5495. So it's most expedient to just apply for discharge of both the executor and trustees and at the same time and with the estate tax return. There is one additional source of personal liability for the executor and that is found in something called the Federal Priority Statute, which is codified at 31 USC section 3713, which you'll notice is not even in the Internal Revenue Code. It states a representative of a person or an estate paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government. Under this provision, an executor who distributes estate assets to beneficiaries before paying the federal estate tax or who pays other debts of the decedent before paying the estate tax can be held personally liable for for the estate taxes. And this doesn't only apply to estate taxes if the decedent owed income tax or gift tax that they didn't pay during their lifetime and the executor has actual or constructive knowledge of those debts to the government, the executor can be personally liable for those taxes as well. Are you convinced yet that you don't want to be an executor? Let's shift gears a little bit and talk about transferee liability. Code section 6324 imposes liability on the transferees of estate property when estate taxes have not been paid by the estate. The list of people who are treated as transferees is a long one and it includes the person's spouse, the trustee of a trust funded by the decedent either at death or before death, the surviving joint tenant under tenants by the entirety's arrangement or joint tenants with right of survivorship, or a person in possession of the decedent's property by reason of the exercise, non exercise or release of a power of appointment. A beneficiary who receives or has on the date of death property included in the decedent's estate. So think there about a designated beneficiary under retirement plan or a beneficiary of a life insurance policy. A lien for estate tax attaches to all of these interests and it's not released by the transfer. Hence we have transferee liability. The only exception is for a transfer to a purchaser for value. And there the lien switches over to what you've received for the property transferred rather than going with the transferred property. If the IRS is pursuing a transferee under transferee liability, they get one extra year to go after that person beyond what they would get to go after the estate. The best place to see all of these provisions in action is in a fairly recent case called U.S. v. Paulson, which was a decision by the 9th Circuit in 2023. And that case is a nightmare. Alan Paulson died in the year 2000. He was 78 years old. He was survived by his third wife, three sons, several grandchildren. The 706 reported a gross estate of $193 million. The estate made a 6166 election with respect to the tax due on the business interest. A whole host of people served as executors and trustees of Allen's estate and revocable trust over the years, including a son, Paulson's accountant, Paulson's doctor, a daughter in law and another son. So the first son serving is the one who made a bunch of distributions to beneficiaries before the taxes were paid. And when the court looked at this, they determined that he was not personally liable because he had filed a Form 5495 for discharge of his personal liability. And the IRS didn't assess these taxes within the nine month period after he filed that form. So he, the one who made the distributions, gets off the hook. The 9th Circuit then turns to the successor trustees who took office after those distributions were already made and concluded that the successor trustees were liable for the tax, as were the beneficiaries who received distributions from the estate or revocable trust under a transferee liability theory. The scary part of this decision is that the court found that successor trustees could be held accountable for the distributions made by their predecessors. The Paulson case is a great read. You ought to look at it and the real intrigue comes from the fact that a large part of this decision turns on the placement of a comma, which you just have to love. The federal priority statute didn't really come up in Paulson, but an earlier district court case in U.S. v. Johnson did rule on executor liability under that statute. In Johnson, the estate owned a business and they made a 6166 election to pay the tax over 14 years. The executor then distributed the estate's assets to the beneficiaries and they entered into an agreement wherein the beneficiaries said, hey executor, we'll make the rest of those 6,166 payments. And then the assets were distributed. Well, as things turned out, the business went bankrupt and the beneficiaries no longer had assets from which to pay the remaining estate tax payments. So what did the government do? The government looked to the executor for payment because the executor transferred the assets of the estate out of his hands into the hands of beneficiaries before the estate taxes were paid. The government's position survived a motion to dismiss and I believe that case was eventually settled because there's no further reported decision. So how is an executor supposed to protect herself? My first piece of advice is don't take on a fiduciary role lightly. Maybe you would just rather be the lawyer and let someone else be the personal representative or the trustee. Think about it before you accept. Is it really worth it? File a Form 5495 with the 706 to speed up the date on which you're discharged from personal liability if you do decide to take on these roles. And then make sure you've identified all taxes that the decedent owes and paid them before you distribute any estate or trust assets to others. Even when you make that distribution, you should consider holding back assets until the statute of limitations runs if you have any concerns whatsoever about additional tax liabilities. And then if you do decide to make distributions before the statute of limitations runs, make sure you've maintained an adequate reserve in case some additional taxes are assessed. Also, when you make those distributions, it's a good idea to use a refunding agreement so that the parties receiving the distributions are obliged to give you the money back should additional liabilities arise. However, as you see in the Johnson case, if the assets dissipate either through the beneficiary spending them or they are going down in value. That won't help you if you have a refunding agreement if the beneficiary doesn't have a way to refund the amounts you distributed. Finally, remember the advice that you don't want to make the client's problem your problem, so protect yourself from personal liability in every way possible should you decide to serve in a fiduciary capacity.
[12:10]
A
Thank you, Beth, for reminding us of the potential liability of fiduciaries and transferees for unpaid estate estate taxes, as well as informing us of the important lessons that can be learned from recent tax and federal court decisions.
[12:22]
B
Thank you for listening to this episode of ACTEC Trust and Estate Talk, the podcast series about wealth planning matters from the American College of Trust and Estate Council. To find an ACTEC lawyer near you, visit actec.org Please subscribe to this series and leave us a rating or a review.

Summary5 min read

ACTEC Trust & Estate Talk
Episode: Liability of Executors and Transferees for Estate Taxes
Host: Travis Hayes
Guest: Beth Shapiro Kaufman
Date: August 4, 2026

Episode Overview

This episode addresses a crucial but often overlooked aspect of fiduciary responsibility: the potential personal liability of executors and transferees for unpaid estate taxes. ACTEC Fellow Beth Shapiro Kaufman unpacks the intersecting responsibilities imposed by the Internal Revenue Code and the Federal Priority Statute, highlights lessons from recent landmark cases, and shares best practices to reduce risk for lawyers and fiduciaries. The episode emphasizes the serious legal considerations for anyone serving as executor or trustee and suggests practical steps to avoid personal financial exposure.

Key Discussion Points and Insights

1. Executor’s Personal Liability for Estate Taxes

[01:25–05:50]

Under IRC § 2002, the executor is directly responsible for paying estate tax.
Personal liability can be discharged by filing IRS Form 5495 (application for discharge), which starts a six-month review period for the IRS once filed.
- After this period, the executor is not personally liable for additional estate taxes assessed, unless there’s a deferral under §§ 6166 or 6161.
- Filing Form 5495 with the estate tax return is increasingly common and not believed to increase audit risk.

"I would urge everyone to file a Form 5495 with their estate tax returns, both to normalize that practice so that nobody is suspicious when you file one with the return and also to get the discharge from personal liability for the executor as early as possible."
—Beth Shapiro Kaufman [04:47]

Trustees (e.g., of revocable or QTIP trusts) can also apply for discharge via the same process, but timing nuances apply.

2. Federal Priority Statute and Broader Tax Liability

[05:50–07:50]

The Federal Priority Statute (31 USC § 3713, not part of the IRC) holds estate representatives liable if they pay other debts before settling federal tax claims.
Applies not just to estate taxes, but also to any unpaid federal taxes (income, gift) of the decedent, if the executor is aware of the liability.

"An executor who distributes estate assets to beneficiaries before paying the federal estate tax or who pays other debts of the decedent before paying the estate tax can be held personally liable for the estate taxes."
—Beth Shapiro Kaufman [06:52]

3. Transferee Liability: Who Is at Risk?

[07:50–09:10]

IRC § 6324 imposes liability on "transferees" (broadly defined: spouses, trustees, joint tenants, life insurance beneficiaries, etc.) if estate tax goes unpaid.
Estate tax lien attaches to all such transferred interests unless the transfer is to a bona fide purchaser for value.
The IRS has an additional year to pursue transferees beyond the statute for the estate.

4. Key Case Law: U.S. v. Paulson (9th Cir. 2023)

[09:10–10:18]

Details the high-profile Paulson estate ($193 million), where multiple fiduciaries, including family members and professionals, distributed assets before taxes were paid.
- The initial executor, who filed Form 5495 and distributed assets, avoided personal liability because the IRS failed to assess within the Form’s protection period.
- Successor fiduciaries and recipients (transferees) were held liable for unpaid taxes—even though they didn’t make the original distributions.
- Notably, successor trustees can be held responsible for predecessors’ actions.

"The scary part of this decision is that the court found that successor trustees could be held accountable for the distributions made by their predecessors. The Paulson case is a great read. ... a large part of this decision turns on the placement of a comma, which you just have to love."
—Beth Shapiro Kaufman [10:13]

5. Executor Liability Under the Federal Priority Statute: U.S. v. Johnson

[10:18–11:00]

In Johnson, the estate made a § 6166 election to pay estate tax over time, but assets were distributed before full payment. When the business failed, beneficiaries couldn’t pay, so the government sought payment from the executor.
The case demonstrates that refunding agreements do not help if distributed assets lose value or are dissipated.

6. Best Practices and Practical Protections for Fiduciaries

[11:00–12:08]

Accept fiduciary positions with caution—understand the risks before agreeing to serve.
Always file Form 5495 early to reduce the risk window for personal liability.
Identify and pay all decedent tax liabilities before distributing assets.
Consider:
- Holding a reserve until the statute of limitations expires
- Using refunding agreements (with awareness of their limits)
- Never turning a client’s tax problem into your personal legal problem.

"My first piece of advice is don't take on a fiduciary role lightly. Maybe you would just rather be the lawyer and let someone else be the personal representative or the trustee. Think about it before you accept. Is it really worth it?"
—Beth Shapiro Kaufman [11:02]

Notable Quotes & Memorable Moments

On the burdens of fiduciary service:
"We might as well have called this podcast why you don't want to be a Fiduciary."
—Beth Shapiro Kaufman [01:25]
On normalizing the use of Form 5495:
"I also know that the largest trust companies in this country routinely file a Form 5495 with their estate tax returns."
—Beth Shapiro Kaufman [04:39]
On the Paulson case’s legal quirks:
"...the real intrigue comes from the fact that a large part of this decision turns on the placement of a comma, which you just have to love."
—Beth Shapiro Kaufman [10:16]

Timestamps for Key Segments

[01:25] — Introduction to executor liability and discharge procedures
[05:50] — The Federal Priority Statute and expanded scope of personal liability
[07:50] — Transferee liability and the reach of tax liens
[09:10] — U.S. v. Paulson: Key facts and outcomes
[10:18] — U.S. v. Johnson: Executor liabilities under § 3713
[11:00] — Best practice advice for fiduciaries

Conclusion

Beth Shapiro Kaufman’s presentation is a cautionary reminder of how estate taxes can create unanticipated exposure for executors, trustees, and beneficiaries. She underlines the importance of early action—particularly filing Form 5495—to limit personal risk, illuminates the complex legal landscape with real-world cases, and advocates for cautious engagement with fiduciary roles. Anyone considering or advising on such roles will benefit from reviewing these principles and recent court decisions.

Loading summary

Transcript6 lines

[00:06]
A
Liability of executors and transferees for estate taxes that is the subject of today's ACTEC Trust and Estate Talk.
[00:13]
B
Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now, our ACTEC Fellow host with today's topic.
[00:38]
A
This is ACTEC Fellow Travis Hayes of Naples, Florida. Serving as an executor or trustee is both an honor and a significant legal responsibility. Fiduciaries are expected to administer estates and trust carefully, but many are surprised to learn that they may also face personal liability. And if estate taxes are not properly handled and addressed, understanding those risks is essential for anyone serving in a fiduciary role. In today's podcast, ACTEC Fellow Beth Shapiro Kaufman of Washington, D.C. will discuss the potential liability of both executors and transferees for unpaid estate taxes, including important lessons from recent court decisions that we should be aware of. She will also explore practical steps fiduciaries can take to reduce their personal exposure while carrying out their duties.
[01:25]
C
Welcome, Beth thank you, Travis. We might as well have called this podcast why you don't want to be a Fiduciary. Let's start with the basics. So the estate tax is imposed under code section 2001A on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. The zinger comes in the next section code section 2002. The tax imposed by this chapter shall be paid by the executor. This is the first place that we see personal liability imposed on the executor. Now, fortunately, the Code also provides a way for the executor to discharge that personal liability. Code section 2204A says that an executor can make a written application for the determination of the amount of estate tax due. In practice, that's done by filing a Form 5495. The IRS then has nine months to tell the executor that more tax is due than what was reported on the estate tax return. The executor is not personally liable for any tax the IRS determines the estate to owe after that six month period, unless there's been a deferral of tax under 6166 or 6161. So after that six month period, the IRS can still assess tax against the estate they've got three years to do that, but the executor would no longer have personal liability. The Form 5495 can be filed as early as with the estate tax return. Now, some practitioners worry that filing a Form 5495 with the 706 will increase the chances of audit, but I've been assured that by former IRS employees that this is not the case. I also know that the largest trust companies in this country routinely file a Form 5495 with their estate tax returns. So I would urge everyone to file a Form 5495 with their estate tax returns, both to normalize that practice so that nobody is suspicious when you file one with the return and also to get the discharge from personal liability for the executor as early as possible. Other fiduciaries, like the trustee of the revocable trust or trustee of a Q Tip trust, can also file for discharge from personal liability and they use that same form 5495. The result is the same. The process and timing is a little bit different. The application by the non executor fiduciary has to be accompanied by a copy of the instrument under which the fiduciary is acting and a description of the property held by that fiduciary. Their discharge becomes effective on the later of the discharge of the executor or six months after the fiduciary makes the application by filing the Form 5495. So it's most expedient to just apply for discharge of both the executor and trustees and at the same time and with the estate tax return. There is one additional source of personal liability for the executor and that is found in something called the Federal Priority Statute, which is codified at 31 USC section 3713, which you'll notice is not even in the Internal Revenue Code. It states a representative of a person or an estate paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government. Under this provision, an executor who distributes estate assets to beneficiaries before paying the federal estate tax or who pays other debts of the decedent before paying the estate tax can be held personally liable for for the estate taxes. And this doesn't only apply to estate taxes if the decedent owed income tax or gift tax that they didn't pay during their lifetime and the executor has actual or constructive knowledge of those debts to the government, the executor can be personally liable for those taxes as well. Are you convinced yet that you don't want to be an executor? Let's shift gears a little bit and talk about transferee liability. Code section 6324 imposes liability on the transferees of estate property when estate taxes have not been paid by the estate. The list of people who are treated as transferees is a long one and it includes the person's spouse, the trustee of a trust funded by the decedent either at death or before death, the surviving joint tenant under tenants by the entirety's arrangement or joint tenants with right of survivorship, or a person in possession of the decedent's property by reason of the exercise, non exercise or release of a power of appointment. A beneficiary who receives or has on the date of death property included in the decedent's estate. So think there about a designated beneficiary under retirement plan or a beneficiary of a life insurance policy. A lien for estate tax attaches to all of these interests and it's not released by the transfer. Hence we have transferee liability. The only exception is for a transfer to a purchaser for value. And there the lien switches over to what you've received for the property transferred rather than going with the transferred property. If the IRS is pursuing a transferee under transferee liability, they get one extra year to go after that person beyond what they would get to go after the estate. The best place to see all of these provisions in action is in a fairly recent case called U.S. v. Paulson, which was a decision by the 9th Circuit in 2023. And that case is a nightmare. Alan Paulson died in the year 2000. He was 78 years old. He was survived by his third wife, three sons, several grandchildren. The 706 reported a gross estate of $193 million. The estate made a 6166 election with respect to the tax due on the business interest. A whole host of people served as executors and trustees of Allen's estate and revocable trust over the years, including a son, Paulson's accountant, Paulson's doctor, a daughter in law and another son. So the first son serving is the one who made a bunch of distributions to beneficiaries before the taxes were paid. And when the court looked at this, they determined that he was not personally liable because he had filed a Form 5495 for discharge of his personal liability. And the IRS didn't assess these taxes within the nine month period after he filed that form. So he, the one who made the distributions, gets off the hook. The 9th Circuit then turns to the successor trustees who took office after those distributions were already made and concluded that the successor trustees were liable for the tax, as were the beneficiaries who received distributions from the estate or revocable trust under a transferee liability theory. The scary part of this decision is that the court found that successor trustees could be held accountable for the distributions made by their predecessors. The Paulson case is a great read. You ought to look at it and the real intrigue comes from the fact that a large part of this decision turns on the placement of a comma, which you just have to love. The federal priority statute didn't really come up in Paulson, but an earlier district court case in U.S. v. Johnson did rule on executor liability under that statute. In Johnson, the estate owned a business and they made a 6166 election to pay the tax over 14 years. The executor then distributed the estate's assets to the beneficiaries and they entered into an agreement wherein the beneficiaries said, hey executor, we'll make the rest of those 6,166 payments. And then the assets were distributed. Well, as things turned out, the business went bankrupt and the beneficiaries no longer had assets from which to pay the remaining estate tax payments. So what did the government do? The government looked to the executor for payment because the executor transferred the assets of the estate out of his hands into the hands of beneficiaries before the estate taxes were paid. The government's position survived a motion to dismiss and I believe that case was eventually settled because there's no further reported decision. So how is an executor supposed to protect herself? My first piece of advice is don't take on a fiduciary role lightly. Maybe you would just rather be the lawyer and let someone else be the personal representative or the trustee. Think about it before you accept. Is it really worth it? File a Form 5495 with the 706 to speed up the date on which you're discharged from personal liability if you do decide to take on these roles. And then make sure you've identified all taxes that the decedent owes and paid them before you distribute any estate or trust assets to others. Even when you make that distribution, you should consider holding back assets until the statute of limitations runs if you have any concerns whatsoever about additional tax liabilities. And then if you do decide to make distributions before the statute of limitations runs, make sure you've maintained an adequate reserve in case some additional taxes are assessed. Also, when you make those distributions, it's a good idea to use a refunding agreement so that the parties receiving the distributions are obliged to give you the money back should additional liabilities arise. However, as you see in the Johnson case, if the assets dissipate either through the beneficiary spending them or they are going down in value. That won't help you if you have a refunding agreement if the beneficiary doesn't have a way to refund the amounts you distributed. Finally, remember the advice that you don't want to make the client's problem your problem, so protect yourself from personal liability in every way possible should you decide to serve in a fiduciary capacity.
[12:10]
A
Thank you, Beth, for reminding us of the potential liability of fiduciaries and transferees for unpaid estate estate taxes, as well as informing us of the important lessons that can be learned from recent tax and federal court decisions.
[12:22]
B
Thank you for listening to this episode of ACTEC Trust and Estate Talk, the podcast series about wealth planning matters from the American College of Trust and Estate Council. To find an ACTEC lawyer near you, visit actec.org Please subscribe to this series and leave us a rating or a review.