The Estate of Hebb

Clarksville, MD – In a suburb of Baltimore, this 205 acre farm was owned by Lorraine Hebb, a widow. On December 23, 2002, Mrs. Hebb died leaving one heir, her son William.

A probate was opened and William was appointed personal representative of the estate. Mrs. Hebb left substantial assets. The estate’s tax advisor estimated there would be a federal estate liability of about $460,000.00.

But William was anxious to move on. He was under contract to purchase a new home in Southern Maryland and needed to liquidate the farm. The agent was aware of the estate tax liability, and was mindful that this liability attached as a lien to Mrs. Hebb’s property at the time of her death without any notice of lien having to be recorded. This is sometimes called a “silent lien.”

William was insistent the tax lien should be ignored. The taxes would be paid later. Maybe he even had a bona fide dispute with the IRS about the amount due: whatever.

The agent agreed to insure the sale, without exception for the estate tax lien, taking as security for payment of the tax an indemnity secured by a second deed of trust against William’s new home in Southern Maryland.

Things were fine for years. The property was re-sold and a new owner bought Owners Title Insurance from the agent.

Almost ten years after Mrs. Hebb’s death, just before their lien would expire by law, the IRS recorded a notice of levy against the farm. This was the unexpected commencement of proceedings to enforce the lien by forced sale of the property.

With penalties and interest, the amount now due was $1.3 million.

William was long gone. His first mortgage had been foreclosed years earlier, displacing William and wiping out the indemnity deed of trust. There was nowhere to go but to the pocket book of the Title Insurance Underwriter. The Company paid $1,336,430 for the release of the estate tax lien, plus legal expenses of $37,507.

MORAL: Only large estates generate federal estate tax liability. But a title company is not in a good position to know the size of the estate or whether a silent lien may be present. Estates should be closed with non-tax releases (or receipt for taxes paid) from the state and federal government before dispursement is made to the heirs.

Where a lien is found to exist, there are ways to safely insure a sale of property out of probate while at the same time procuring a release of the lien. This will involve a senior title underwriter familiar with estates.