Fiduciaries need to be aware of the potential for personal liability if distributions
are made to beneficiaries prior to fully satisfying tax liabilities of an incapacitated
taxpayer or decedent. Under 37 USC section 3713, known as the “Federal Priority
Act,” a fiduciary may be held personally liable for any distribution in contravention of the Federal Priority Act if the incapacitated or deceased taxpayer (i) failed
to file any tax return, (ii) failed to pay any tax, interest or penalties, or (iii) filed
inaccurate or incomplete tax returns. This session will discuss the Federal Priority
Act, actions that the fiduciary may consider taking to minimize its application, how
probate courts address these issues, ethical considerations, and what efforts can
be made to enable the fiduciary to receive a full release of personal liability.
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