Disclaimers and federal tax liens' effect on inheritances

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

However, the Court clearly specified that transferability is not a prerequisite to establishing that a state law right constitutes property or a right to property under Code section 6321.108 In addition, the Court noted that a mere expectancy that has pecuniary value and is transferable under state law does not fall within Code section 63 21 prior to the time such right ripens into a present estate.109 For example, the Service's liens would not have attached to Drye's expectancy before the Decedent's death.

The Court then discussed Drye's argument that under section 28-2-101 of the Arkansas Code, Drye had a right to disclaim his inheritance, a right that is personal and not marketable.110 The Court did not agree with Drye that his personal right to reject the inheritance was not transferable and did not have pecuniary value.111 Instead, the Court held that Drye's right had considerable value because Drye possessed "the right either to inherit or to channel the inheritance to a close family member (the next lineal descendant [under Arkansas's intestacy laws])."112 According to the Court,

Drye possessed dominion over the property because Drye could determine whether he or the next lineal descendant would receive the property.113 The Court noted that Drye's disclaimer of an inheritance as an heir is different from the disclaimer of an intervivos gift.114 The reason for this difference is that a donee who disclaims an intervivos gift restores the status quo, allowing the donor to re-give the gift; whereas, a disclaiming heir does not restore the status quo because the decedent does not have the opportunity to re-give the gift.115

In conclusion, the Court stated that Drye's power to determine who would receive the inheritance constituted property or a right to property under Code section 6321.116 Therefore, Drye's disclaimer under Arkansas state law was not valid, and the property did not pass to Drye's daughter as the next lineal descendant to inherit under Arkansas a part of intestacy laws. Thus, the Service was able to collect a part of the tax Drye owed the federal government for the tax years 1988, 1989, and 1990 by attaching tax liens to Drye's state law rights to the Decedent's estate.

Does the result that the United States Supreme Court reached in Drye seem just? The result seems fair to the heir or devisee that owes the federal government money for tax deficiencies because the delinquent taxpayer deserves no sympathy and should not be able to benefit from a legal maneuver. However, the result is not fair to uninformed decedents and other possible heirs and devisees who owe the federal government nothing.

If a decedent knows prior to his death that all or some of his hard earned life savings will go to the federal government instead of to an intended beneficiary, then the decedent might leave his money to a nondelinquent beneficiary. In Drye,117 the decedent might have written a will and left her money to her granddaughter or someone other than her son if she knew that the federal government would receive all of her money. Similarly, in Comparato,118 the decedent probably would not have left his property to his father if he knew the federal government would receive the assets. Instead, the decedent would have left the property to someone else. These results not only seem unfair to the decedent, but also to the individual or charity who would have received the decedent's estate if the decedent knew the law. The lesson to be learned from the Drye case is that everyone with assets should consult an estate attorney.