[WSBAPT] Unpaid Taxes and Fiduciary Duty to Beneficiaries

[Robert Ordal]

James,

Joe Hagen in Portland knows this stuff.

Bob Ordal


Joseph T. Hagen
Hagen O'Connell & Hval LLP
P: (503) 227-2900
F: (503) 227-3870
jhagen at hagenoconnell.com<mailto:dkerns at hagenoconnell.com>

From: <wsbapt-bounces at lists.wsbarppt.com> on behalf of "James W. Spencer" <jamess at brothershenderson.com>
Reply-To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Date: Friday, November 16, 2018 at 11:44 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Unpaid Taxes and Fiduciary Duty to Beneficiaries

Greetings Listmates:

I have a… um, theoretical… situation.

The facts are pretty simple (and likely quite common): Decedent dies in 2018. During the administration of Decedent’s estate, it is discovered that Decedent hasn’t filed annual income tax returns, likely for a decade or two. This is probably not really an issue, as Decedent apparently didn’t work and had no W-2 income. However, in 2016, Decedent sold a home, and the proceeds are well outside of the $250,000 individual capital gains tax exemption for the sale of a primary residence. Unpaid capital gains taxes are likely in the $75,000 - $100,000 range (depending on the final determination of the tax basis in the residence). Estate accountant is advising PR that the PR should file a tax return for 2016 and pay the capital gains tax. While beneficiaries have already received some notable portion of the estate, this will (more than) eat up all remaining funds in the estate, leaving nothing else for the beneficiaries.

I would love some opinions on the nexus between the PR’s fiduciary duties to the estate’s beneficiaries and the PR’s responsibility to properly administer the estate, including dealing with taxes. The underlying questions is whether it a breach of fiduciary duty for the PR to file a tax return that will deny the beneficiaries significant funds where there is a very real possibility that the IRS will never come after those taxes if no return is filed.

I have some opinions on this, but would really appreciate some feedback from the hivemind.

Thanks,
James

James W. Spencer
Attorney at Law
Brothers & Henderson, P.S.
2722 Eastlake Avenue East, Suite 200
Seattle, Washington 98102
Phone: (206) 324-4300 x106
Fax: (206) 324-3106
e-mail:  jamess at brothershenderson.com<mailto:jamess at brothershenderson.com>
www.brothershenderson.com<http://www.brothershenderson.com/>
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