Q: Is there any California law preventing me from paying my deceased fathers back taxes out of pocket?
My father died intestate in California and I am the administrator. My brother is the only other heir. He left behind a lot of unpaid tax bills. He also left my brother and me healthy sums of money via POD accounts. Can I just use those out of pocket funds to pay off his back taxes to keep the settling of the Estate simpler? I could probably get my brother to pay half of the back taxes. It would be VERY bad financially for us to sell the house, so I don’t want to be forced to sell the house in order to settle creditors claims. There is very little value in the Estate aside from the house.
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A:
Under California law, there is no legal prohibition against you paying your deceased father's back taxes out of pocket, using the funds you received from the POD (Pay-on-Death) accounts. In fact, it may be a practical solution to settle the estate more efficiently and avoid selling the house, which you mentioned would be financially disadvantageous.
However, there are a few considerations you should keep in mind:
1. Estate debts: As the administrator of the estate, you are responsible for settling your father's debts, including any outstanding taxes, using the estate's assets. If you pay the taxes out of pocket, you may be entitled to reimbursement from the estate.
2. Agreement with your brother: If you and your brother inherit the house jointly, it would be best to agree on how to handle the back taxes. If your brother agrees to pay half of the taxes, make sure to document this agreement in writing.
3. Gift tax considerations: If you pay a substantial amount of your father's back taxes without being reimbursed by the estate, it might be considered a gift to your brother. However, as of 2023, the annual gift tax exclusion is $17,000 per recipient, and the lifetime gift tax exemption is $12.92 million, so this may not be a concern unless the amounts are significant.
4. Consult with a professional: Given the complexity of the situation, it would be wise to consult with an estate attorney or tax professional familiar with California law. They can provide guidance on the best course of action and help you navigate any potential legal or tax implications.
Ultimately, paying the back taxes out of pocket can be a viable solution, but it's essential to consider the legal and financial implications and to document any agreements made with your brother.
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