Disclaimers and federal tax liens' effect on inheritances

Real Property, Probate and Trust Journal, Summer 2001 by Bluestein, Brett A

The taxpayer in Mapes also disclaimed his interest in his mother's estate to prevent the Service from acquiring a lien on that interest. Again, the purpose of this disclaimer seems to have been to ensure that someone other than the Service would receive the disclaimed assets of the estate.66 The Ninth Circuit held that federal law controlled the issue of whether a lien can attach to a property interest, but held that state law controlled the issue of the quality of the interest the taxpayer had in his mother's estate. The Ninth Circuit looked at Arizona's probate code and found that the disclaimer "had the effect of preventing Mapes from acquiring any interest in the estate."67 Because no property interest existed to which the federal tax lien could attach, the Service was unable to satisfy its lien against the taxpayer.68

In Leggett v. UnitedStates,69 a case in which the court reached a result similar to that in Mapes, the Fifth Circuit Court of Appeals held that a state law disclaimer of an interest in an estate prevented the attachment of a federal tax lien to that interest.70 The taxpayer in Leggett filed a disclaimer of all rights she possessed in her aunt's estate.71 Again, the taxpayer in Leggett was motivated to disclaim these rights to ensure that someone other than the Service would receive the disclaimed assets.

The Fifth Circuit determined that "state law determines whether a taxpayer has a property interest to which a federal lien may attach."72 In its analysis, the Fifth Circuit discussed two sections of the Texas Probate Code, which it deemed to be in conflict. Section 37 of the Texas Probate Code states the following:

When a person dies, leaving a lawful will, all of his estate devised or bequeathed by such will, and all powers of appointment granted in such will, shall vest immediately in the devisees or legatees of such estate and the donees of such powers; and all the estate of such person, not devised or bequeathed, shall vest immediately in his heirs at law; subject, however, to the payment of the debts of the testator or intestate, except such as is exempted by law, and subject to the payment of court-ordered child support payments that are delinquent on the date of the person's death; and whenever a person dies intestate, all of his estate shall vest immediately in his heirs at law, but with the exception aforesaid shall still be liable and subject in their hands to the payment of the debts of the intestate and the delinquent child support payments; but upon the issuance of letters testamentary or of administration upon any such estate, the executor or administrator shall have the right to possession of the estate as it existed at the death of the testator or intestate, with the exception aforesaid; and he shall recover possession of and hold such estate in trust to be disposed of in accordance with the law.73

Section 37A of the Texas Probate Code provides the following:

Any person, or the guardian of an incapacitated person, the personal representative of a deceased person, or the guardian ad litem of an unborn or unascertained person, with prior court approval of the court having, or which would have, jurisdiction over such guardian, personal representative, or guardian ad litem, or any independent executor of a deceased person, without prior court approval, who may be entitled to receive any property as a beneficiary and who intends to effect disclaimer irrevocably on or after September 1, 1977, of the whole or any part of such property shall evidence same as herein provided. A disclaimer evidenced as provided herein shall be effective as of the death of decedent and shall relate back for all purposes to the death of the decedent and is not subject to the claims of any creditor of the disclaimant. Unless the decedent's will provides otherwise, the property subject to the disclaimer shall pass as if the person disclaiming or on whose behalf a disclaimer is made had predeceased the decedent and a future interest that would otherwise take effect in possession or enjoyment after the termination of the estate or interest that is disclaimed takes effect as if the disclaiming beneficiary had predeceased the decedent. Failure to comply with the provisions hereof shall render such disclaimer ineffective except as an assignment of such property to those who would have received same had the person attempting the disclaimer died prior to the decedent.74