Title Examination Standards
Chapter 1, App.
Chapter 25. Limited Liability Companies
§25.2. The Federal Estate Tax Lien.

1. A. SCOPE.

   The total estate tax ultimately determined to be due in respect of the gross estate of a decedent is a lien in favor of the United States upon such gross estate, except that part of such gross estate as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof. Said lien attaches immediately upon death and without notice.

   Authority: 26 U.S.C.A. §§ 2031-2044 & 6324(a). Comment: 1. Types of property, as defined by federal law, which may be in the gross estate but not in the probate estate include but are not limited to: insurance upon the life of the decedent with respect to which the decedent possessed any incident of ownership; property owned jointly or by the entireties; property subject to a power of appointment; property which decedent transferred during decedent's lifetime, but in which decedent retained certain incidents of ownership and transfers taking effect at death. The taxable estate may be increased by taxable gifts made after December 31, 1976. 2. The federal estate tax lien is not valid as against a mechanic's lien or, subject to the conditions provided in 26 U.S.C. § 6323(b), any other lien or security interest described in 26 U.S.C. § 6323(b); See 26 U.S.C. § 6324(c)(1). 3. The provisions of 26 U.S.C. § 2204 relating to discharge of fiduciary from personal liability do not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be determined to be due, unless such part of the gross estate (or any interest therein) has been transferred to a purchaser or a holder of a security interest, in which case such part (or such interest) is not subject to a lien or to any claim or demand for any such deficiency, but the lien attaches to the consideration received from such purchaser or holder of a security interest, by the heirs, legatees, devisees or distributees.

2. B. DURATION.

   The federal estate tax lien continues as a lien on all of the property in the decedent's gross estate (except that part of such gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof) for ten (10) years from the date of death or until it becomes unenforceable by reason of lapse of time.

   Authority: 26 U.S.C. § 6324(a)(1). Comment: 1. The granting of a request for an extension of time for filing the return or paying the tax will prolong the period for assessment and may create a later lien under the general federal tax lien (see Standard 25.1), 26 U.S.C.A. § 6503(d). 2. Such requests are authorized under 26 U.S.C. § 6161(a)(2), for reasonable cause; 26 U.S.C. § 6163, reversionary or remainder interest; 26 U.S.C.A. § 6166, interest in closely held business; 26 U.S.C. § 6081, automatic six month extension of time for filing return. 3. The duration of the estate tax lien may be limited to ten years regardless of any government collection action, United States v. Cleavenger, 517 F.2d 230 (7th Cir. 1975); but see United States v. Saleh , 514 F.Supp. 8 (D.N.J. 1981) (holding that an estate tax lien can be enforced more than ten years after the decedent's death when the foreclosure action is filed within the ten-year period).

3. C. DIVESTITURE OR RELEASE.

   Lands included in a decedent's estate sold to pay charges and expenses are divested of the federal estate tax lien to the extent that the proceeds are used to pay charges and expenses allowed by the district court, provided no notice of a general federal tax lien has been filed/recorded in the county clerk's office.

   Authority: 26 U.S.C. § 6324(a)(1). Comment: 1. The divesting of the estate tax lien depends upon a question of fact: were the proceeds of the sale used for the payment of allowed charges and expenses? Hence, preservation of evidence of the actual disposition of the proceeds of the sale is essential. 2. Release of estate tax liens or discharge of property from such liens can be secured for sales during administration if the tax has been fully satisfied or otherwise provided for, 26 U.S.C. § 6325(a) & (b). Applications for release or discharge should be made to the District Director, Attention: Estate and Gift Tax; See 26 U.S.C. § 6325(c). 3. Probate files should contain the Estate Tax Closing Letter (IRS form letter 627(SC)(Rev. 9-83)) and, if proof of settlement of the federal estate tax is required by a title examiner or other interested party, such proof should be made by a copy of said letter together with canceled check(s) or receipt(s) showing payment of the net estate tax set forth in said letter and interest and penalties (if any). 4. A certificate of non-attachment may be issued where because of a confusion of names or otherwise, a notice of lien has been filed, and the lien is clouding title to property belonging to a person other than the taxpayer, 26 U.S.C. § 6325(e).

History: This standard was reworked completely and its adoption recommended by the Report of the Title Examination Standards Committee, 57 O.B.J. 2677, 2685-86 (1986). It was approved by the Real Property Section, November 20 , 1986, and adopted by the House of Delegates, November 21, 1986.

The 2011 Report of the Title Examination Standards Committee, 82 O.B.A.J. 2466 (2011), proposed a change in this Standard to update the authority for the Federal Estate Tax marital deduction. The proposal was approved by the Real Property Section on November 3, 20111, and adopted by the House of Delegates on November on November 4, 2011, 82 O.B.A.J. 2694 (2011).