Probate & Trust Law Section Conference Manual ... - Minnesota CLE

the liability is not granted?
vii. Did the spouse (or the Fiduciary) make a good-faith effort to comply with
federal income tax laws in the subsequent tax year(s) to which the request
for relief relates?
f. Minnesota has its own relief process with its Joint Spouse Allocation program,
pursuant to Minn.Stat. §289A.31, subd. 2. A written request is made to the
Minnesota Department of Revenue’s Taxpayer Rights Advocate Office, which
includes copies of the joint tax returns (federal and state), the death certificate (or
the parties’ divorce decree as the case may be), and any other applicable
information to assist the Department in allocating the tax liability. Once the
request is made, the nonrequesting spouse is notified. A determination letter will
be sent to both parties, who will have 30 days to respond with any additional
information for the Department to consider. Upon final assessment, the
Department will update its records for the reallocation of tax liability, if
applicable. Taxpayers are not refunded any payments made prior to the request;
however, amounts paid in after the request will be refunded after a final
determination is made.
4. Collection
a. It is clear that the Fiduciary’s ability to pay taxes is limited by the amount of
assets available; however, sufficient amounts need to be appropriately distributed
and held back to pay outstanding tax liability. Otherwise, the Fiduciary or the
heirs can be held liable and collection will be pursued against them.
b. After assessment and nonpayment, the IRS and Minnesota Department of
Revenue collection departments take on the task of seeking assets from which to
get paid. The first search is for probate assets. If no known assets are located and
no probate is opened, the debt is likely deemed uncollectible. However, there are
certain non-probate assets that can be collected on. For example, assets held in
trust can be used for payment of outstanding liabilities. It is the Trustee’s
fiduciary responsibility to pay all debts of the trust before distributing the Trust
corpus. In this case, the trustee may be held personally liable for any unpaid taxes
if the assets are intentionally distributed without the taxes being paid. Intent is
broadly construed and the Trustee is held to a high standard. He or she should
have had no reason to know that the taxes were due prior to distributing the Trust
assets.
c. An unanticipated difficulty may arise if the assets of the estate are not readily
saleable or have no current market and the estate tax due thereon cannot be paid
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