Federal Estate Tax Liens
What, When and How to Clear Them in Real Estate Transactions
By Kelsea Laun
Federal estate taxes are imposed and become a lien upon the estate of the decedent immediately upon their death, and remain so for a period of 10 years, unless exempt. Several states and the District of Columbia also impose an estate tax, and may have different exemption amounts, rates and rules. Title agents handling transactions involving a deceased property owner must consider both state and federal estate tax liens. Here are some frequently asked questions (FAQs) about federal estate tax liens.
When do federal estate tax liens attach to a property?
Federal estate taxes are a lien imposed upon property following the death of its owner. The lien continues against the decedent’s estate for a period of 10 years. In most cases, a federal estate tax lien is not recorded in the real property records, but it is still enforceable against third-party purchasers. Estates with a gross value of $13,610,000 or more for the year in which the owner died are subject to federal estate taxes. When handling an insured transaction involving a decedent’s estate, title agents should be aware of this threshold amount for the year in which the decedent died. This amount can change, but not frequently.
What is the estate tax exemption for U.S. citizens?
According to the Internal Revenue Service (IRS) Revenue Procedure 2023-24, the federal estate tax exclusion for decedents dying after December 31, 2023, and who were either U.S. citizens or residents at the time of death, is $13,610,000. For estates that exceed the exemption amount, federal estate taxes are levied on the portion of the estate’s value that exceeds the exemption. For example, if a U.S. citizen or resident died in 2024 and their estate is valued at less than $13,610,000, no federal estate tax will be due. However, if their estate is valued at $20,000,000, for example, the first $13,610,000 would be exempt, and the remaining $6,390,000 would be subject to federal estate tax.
A table of the federal estate tax filing thresholds applicable to U.S. citizens or residents for prior years is published in the IRS’ instruction booklet for Form 706, which can be found here. Title agents and their customers should be aware that the 2017 Tax Cuts and Jobs Act (TCJA) is scheduled to sunset – or expire – at the end of 2025, at which time estate tax exemptions will revert back to 2017 levels (as adjusted for inflation).
How does the estate tax impact non-U.S. citizens?
The threshold for non-U.S. citizens or residents is considerably lower than a U.S. resident’s exemption. If the fair market value at death of the decedent’s U.S.-situated assets exceeds $60,000, an executor for a nonresident who is not a citizen of the U.S. must file an estate tax return, Form 706-NA. This is true whether the non-U.S. citizen is living within the United States, or not.
When does the estate tax lien attach?
When a title agent is handling a transaction involving property subject to a federal estate tax lien, there are three possible options for insuring without exception to the estate tax lien:
1. Satisfy the lien and obtain a release.
An IRS estate tax closing letter can be requested from the IRS to establish the amount payable to affect a release. It may take some time for the IRS to record a release upon payment, but Doma agents may be able to rely on the estate tax closing letter, along with evidence of payment in full to obtain approval from underwriting counsel to insure without exception.
2. Obtain and record a transaction-specific release.
Title gents can also apply to the IRS for a transaction-specific release using the Application for Certificate Discharging Property Subject to Estate Tax Lien (IRS Form 4422). The application for a transaction-specific release must be submitted to the IRS Advisory Estate Tax Lien Group at least 45 days before the transaction date. This is a lengthy process that may require additional filings. Title agents may wish to require their customers to retain a tax professional to assist the customer in obtaining the transaction-specific release.
Assurances by the heirs or personal representative of the decedent’s estate that the estate has sufficient funds to satisfy any estate tax lien may not be relied upon as an alternative to obtaining a release. Any estate valued at more than the basic exclusion amount for the year of death must file a federal estate tax return, even if no federal estate tax will be owed after applicable exclusions and deductions are applied.
3. Transactions involving divestment of the property from the federal estate tax lien.
A federal estate tax lien may be divested from certain property of the decedent’s estate in three scenarios:
a) Property held in a tenancy by the entireties (TBE), or held by joint tenants with rights of survivorship (JTWROS).
b) Property held individually where the surviving spouse of the decedent is the sole beneficiary of the deceased spouse’s estate.
c) Sale necessary for administration of the estate pursuant to probate court order.
Title agents relying on divestment of property to insure without release of a federal estate tax lien must obtain Doma underwriting counsel approval.
What action, if any, is needed to insure title when the decedent’s estate does not approach the taxable threshold?
Given the value of the federal exclusion amount, few estates will be subject to federal estate tax, and a large number of estates will not be required to file a federal estate tax return. Unless additional measures are required in your state, in instances of small estates that are not required to file a return pursuant to the Internal Revenue Code, Doma agents may rely upon and record an affidavit given by the personal representative attesting that the estate is not taxable.
The clearance of estate tax liens can be time-consuming but is an important step in clearing title for insured transactions. If property is subject to federal or state estate taxes, agents should not insure without a release of the lien for such taxes without approval from local underwriting counsel. Customers should also be certain to secure guidance from a tax professional.
Kelsea Laun is Vice President, Southeastern Regional Underwriting Counsel for Doma Title Insurance, Inc.