Executors, Trustees and Beneficiaries of Large Estates Can Be Haunted by Unpaid Estate Taxes for Decades through Transferee Liability
By Sandra D. Mertens, Esq.[1]
Estate taxes have made the news over the last year since President Trump’s One Big Beautiful Bill Act increased the lifetime exemption amount (i.e., the “unified credit”) to $15 million for decedents dying in 2026. Despite the higher exemption, large estates will still be required to file estate taxes and pay corresponding liabilities. Due to the computation of the “gross estate,” taxable amounts are assessed estate taxes at rates ranging from 18% to 40%. This means that, while fewer decedents will owe estate taxes because of the higher exemption, those estates which owe estate taxes often owe significant sums.
Internal Revenue Code Section 6324(a)(1) imposes a “lien upon the gross estate of the decedent for 10 years from the date of death” if estate taxes are not fully paid. Section 5324(a)(2) imposes personal liability for unpaid estate taxes on “the spouse, transferee, trustee . . ., surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent’s death, property included in the gross estate under sections 2034 to 2042, inclusive, to the extent of the value, at the time of the decedent’s death, of such property, shall be personally liable for such tax.” If the person transfers property subject to the lien in a manner in which the property loses the lien (e.g., to a bona fide purchaser), then the lien transfers to the seller’s own personal property and/or to the proceeds received from the sale of the property.
Despite this clear mandate, executors, trustees, and beneficiaries alike are often surprised when the IRS comes knocking to collect unpaid estate taxes. Perhaps this is because estate taxes, already a rather rare tax return, are most often paid with the tax return, since the ability to defer estate taxes beyond the due date of the return (including extensions) is fairly limited (e.g., IRC Section 6166(a)(1) allows an executor to pay the tax in up to 10 equal installments which may be deferred to begin 5 years after the payment deadline if the gross estate included an interest in a closely held business which comprised more than 35% of the adjusted gross estate). Additionally, if the estate is probated, the probate case typically cannot be closed unless the executor advises the Court under penalties of perjury that estate taxes have been paid.
In Paulson, the IRS had pursued collection efforts for unpaid estate taxes against the decedent’s surviving spouse, beneficiaries, trustees, and the executor of the decedent’s estate.Estate of Paulson, 68 F.4th 528 (9th Cir. 2023) (cert. denied, No. 23-436 (U.S. March 4, 2024)). The Ninth Circuit held that Code Section 6324(a)(2) imposes personal liability for unpaid estate taxes on the categories of persons listed in the statute who receive property included in the gross estate or have possession of such property on the date of death. The Court determined that the successor trustees and trust beneficiaries fell within the categories of persons who are liable under Section 6324(a). The Court rejected the historical application of Section 6324(a) against only persons in actual possession of assets on the date of death or those with an immediate right to such assets (e.g., life insurance beneficiary), rather than persons who took possession at some time in the future. One judge dissented in a lengthy and strongly-worded argument. Nevertheless, the U.S. Supreme Court declined to hear the transferees’ appeal, denying certiorari in March 2024.
Earlier this year, the District of Kansas federal court decided U.S. v. Karst and Templeton, Case No. 24-cv-04090-TC, 2026 WL 560224 (D.Kans. Feb. 27, 2026). In Karst, the decedent Donald Karst passed away in 2007, at which time the federal estate tax exemption was $2 million. His son, Monty Karst, was the Executor of the Estate and both Monty and Todd Templeton (a second son) served as co-Trustees of the decedent’s living trust. Monty and Todd filed an estate tax return for the decedent reporting a gross estate of $3.9 million, resulting in an estate tax liability of $792,790. The estate elected to pay the liability in yearly installments under IRC Section 6166. After several years of payments, Monty and Todd stopped making the estate tax installment payments. The IRS assessed the remaining estate taxes, plus interest and penalties, totaling $1.1 million as of June 2025, and assessed and sought to collect from the Estate and all beneficiaries. Monty and Todd argued that the IRS was barred from collecting the balance due by the 10-year statute of limitations, since the tax return had presumably been filed in 2008. The Court found that, while the IRS generally has 10 years to collect taxes from a decedent’s estate under 26 U.S.C. §6502(a)(1), the period was suspended under 26 U.S.C. §6503(d) because the Estate made a deferment election under Section 6166. The IRS did not terminate the deferral election until May 2018, which means that the statute of limitations will not run until May 2028.
Moreover, the Court agreed with the IRS that Monty and Todd were personally liable for the estate tax debt under Code Section 6324(a)(2), because: (i) the estate tax was assessed and remains unpaid; (ii) Monty and Todd were co-trustees of the Trust on the date the decedent died, which meant they held title to all Estate property, which was reported in the gross estate for estate tax purposes; (iii) Monty and Todd were also the primary beneficiaries of the Estate and Trust; and (iv) Monty and Todd distributed the property to themselves without fully paying the estate taxes. Their personal liability was also joint and several for the full amount due to the IRS.
These cases show the strength and breadth of the IRS’s ability to collect estate taxes. Neither the passage of time nor a transferee’s limited involvement was able to stop the fiduciaries and beneficiaries in these cases from being personally liable for the entire balance due, plus hefty penalties and interest.
According to the IRS’s 2025 Tax Book, estate tax revenues comprised only 0.5% of total revenues for fiscal year 2024 (ending September 30, 2025) and estate tax filings decreased by 9.6% between 2024 and 2025. See https://www.irs.gov/pub/irs-pdf/p55b.pdf, Tables 1-1, 1-2. Nevertheless, the rate of estate tax return examinations has historically ranged from 2% to 10%, significantly higher than the rate of any other tax return category other than high-income individuals and corporations. See id. at Table 3-1. For example, the IRS reports that it examined 3.4% (or 1,125 of 3,003 estate tax returns filed) of estate tax returns during fiscal year 2020, recommending additional estate taxes totaling $1,281,752,000, compared to examining only 0.3% of individual income tax returns and 0.5% of corporate income tax returns overall. Id.
The IRS typically does not decide to audit a Form 706 until nine months after the filing date. Moreover, since 2021, estate tax closing letters are not routinely issued, but must be specifically requested with a fee payment.
For these reasons, executors and trustees should work closely with a tax return preparer who is experienced in estate taxation and can provide guidance on payment deadlines, closing procedures, and the consequences of non-payment. SFBBG’s attorneys are well equipped to assist with the preparation of estate tax returns and to advise estates on their tax obligations.
Additionally, SFBBG’s estate planning attorneys can help high-net-worth clients implement pre-death planning strategies designed to minimize or avoid estate taxes. We can provide guidance on lifetime gifting, the use of irrevocable trusts, valuation discounts, and other advanced planning techniques tailored to each client’s financial and family circumstances.
[1] Sandra D. Mertens is a Partner at Schoenberg Finkel Beederman Bell Glazer LLC, and may be contacted at (312) 648-2300 or Sandra.Mertens@SFBBG.com.
