Government Forecloses on Trust Property Due to Settlor's Tax Bill

U.S. v. Tingey, No. 12-4000 (10th Cir. May 29, 2013)

The U.S. Tenth Circuit Court of Appeals recently published an opinion concerning government foreclosure of property titled in the name of a trust, essentially allowing the government to collect on the tax-payer's purchase-money resulting trust in the property.

A purchase-money resulting trust arises in a purchaser when a purchaser uses his or her own money to purchase property and then conveys the property to another without consideration. Here, Douglas Brown purchased a ski cabin and conveyed it to the Family Trust, whose beneficiaries were Brown's wife and children.

The lower court determined that Brown intended the trust to hold the cabin for his benefit and that Brown, therefore, held a valuable purchase-money resulting trust. Even though the taxes were owed by Brown and his wife, not the trust, the court found that Mr. and Mrs. Brown were the beneficial owners of the cabin and the property was within reach of the federal government for the Brown's tax liens.

The moral of the story is, if you are considering setting up a trust vehicle, consult experienced estate planning attorneys first to be sure the trust is properly funded and protected from after-acquired liabilities. Our experienced probate attorneys explain trust options, fiduciary duties and the trust administration and probate process in Texas. Contact an experienced Bryan, Texas estate planning attorney at the Peterson Law Group today at 979-703-7014.