Handling a Trust Administration with Federal and California Tax Issues: A Practical Guide

In the Eighteenth Century, renowned English justice and commentator on common law, Sir William Blackstone, stated that “[the king’s] debt shall be preferred before a debt to any of his subjects.”^[i] Although Sir Blackstone made this pronouncement many years before the existence of the Internal Revenue Service (the “IRS”) or the California Franchise Tax Board, the principle still often applies today.

In a recently published article, Steven L. Walker provides trusts and estates practitioners with an understanding of the tax issues involved when a decedent dies with federal or state tax compliance issues. A common scenario is as follows: a client passes away with a balance due to the IRS or the California Franchise Tax Board. The executor or trustee is concerned about personal liability when distributing assets to trust beneficiaries or other creditors without first addressing the taxing authorities. Another example is when a deceased client possesses assets abroad that have not been disclosed to the IRS, such as a foreign bank account, the sale of foreign real estate, a foreign trust, or an Australian superannuation fund. Unbeknownst to some, there are procedural options available to practitioners that enable them to handle tax issues, allowing a fiduciary to make distributions and potentially protect against personal liability.

For a copy of the article, see California Trusts & Estates Quarterly, Volume 31, Issue 4.