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No Estate Taxes For POD Beneficiary

On Behalf of | May 11, 2011 | Firm News |

Teenager Is To Receive $4 Million

Before James died without a will, with an estate valued at about $12 million, he had designated his teenage goddaughter Jessica as the beneficiary on two Payable-On-Death accounts (also called POD accounts), which were worth almost $4 million at the time of his death.

Sued By The Estate

Jessica and her parents were then sued by James’ estate, which was seeking reimbursement for the federal and state estate taxes that were attributable to the POD accounts.

The state supreme court ruled that Jessica had no obligation to pay any of the estate taxes.

The starting point for the analysis was the general rule that the probate estate pays such federal estate taxes, as may be generated by non-probate assets, such as life insurance proceeds, jointly held property, and POD accounts. An exception to this rule exists for transfers by the decedent, during his or her lifetime, with a retained life estate.

But Jessica’s case did not come within that exception.

A POD account transfers no property to the recipient during the decedent’s lifetime, since the depositor remains free to make changes in the account, or even to close it at any time before his or her death.

The result was the same for the claim based on state estate taxes.

A final argument directed at both Jessica and her parents on a contractual theory also failed. Jessica’s parents had signed a two sentence agreement with the estate, to retain 50% of all sums payable on the POD accounts, for the purpose of paying required estate taxes. This did not obligate Jessica (or her parents) to pay a portion of the estate taxes attributable to the accounts, since the accounts were not otherwise required by law to pay any estate taxes.

Estate Taxes Are Were Not Required

In short, there were no required estate taxes as referred to in the agreement. Not only that, but Jessica, the only named recipient for the accounts, did not sign the agreement and was not a party to it. And the agreement did not suggest that Jessica’s parent were not signing in any capacity, other than for themselves.

There are many important cases that are coming down from our courts at this time.

Bill Peterson is a Minnesota Estate Planning Attorney with over 40 years of experience as a lawyer. He can help you plan for the future by creating a Minnesota Estate Plan. For more information, please visit http://www.mnestateplan.com or call toll free at .

The contents of this article are for information only and is not to be interpreted as legal advice. For personal legal advice you should consult with an attorney who is experienced in probate law or estate planning.