Legal Question in Wills and Trusts in Virginia
Cousin sells assessed Estate Property Gifted by Heirs causing IRS conflict
OK, this is complex. My Grandfather died in 1998. He had a clear will,as did my grandmother-who's estate was held in trust until his death per her request. My mother was heir to grandmother's estate, and she and my aunt shared his estate. All property was professionally assessed that week, and my mother and Aunt allowed grandchildren, step-children and nieces/nephews to take pieces of furniture and paintings(mostly by grandmother) with the caveate that it must remain in the family. My cousin took a painting, and a year later had it re-assessed for 800,000 dollars and then decided to sell it without consulting the heirs (mother and aunt). At that point, not only had the estate not been dispersed, but it had not officailly been settled. No one found out until the IRS came looking for more tax money. 1)Is she liable to the estate for the sale amount, since it had not been officially closed, and she did not have permission to sell, 2) is she liable to the heirs, since she did not follow the caveate-she knew they might deny sale and wanted to keep the money 3) is she criminally liable for theft?
2 Answers from Attorneys
Re: Cousin sells assessed Estate Property Gifted by Heirs causing IRS conflict
In answer to your questions #1 and #3, I see no criminal or civil liability (to the estate) on the part of your cousin for engaging in what might be characterized as unauthorized personal enrichment at the expense of your grandmother's estate.
You say that the painting was given to her with "the caveat" that it be kept within the family. Informal caveats are normally oral in nature (as presumably this one was)and whether
this particular caveat even rose to the level of an actual oral agreement between this particular cousin and the immediate heirs (your mother and aunt)is problematical. If in fact it did, then the agreemnet might well be subject to the Virginia version of the common law Statute of Frauds(SOF) found at Va. Code Sec. 11.2 which requires that certain agreements, if they are to have enforceability, be evidenced by a writing and signed by the parties to be charged(as the time honored phrasing goes), meaning those who allegedly have failed to perform their obligations under these particular kinds of agreements.
Subsection (8) of the Virginia Statute of Frauds
puts all agreement which are not to be performed within one year within the SOF and, arguably, if in fact there even was an agreement between this particular cousin and the estate's immediate heirs, it was not one which reasonably could've been expected to be performed within the term of one year and, therefore, some writing evidencing the agreement would be required for its enforceability.
Consequently, based upon the above, my answer to
your question #2 would also be in the negative.
Re: Cousin sells assessed Estate Property Gifted by Heirs causing IRS conflict
More interesting than complex. Your grandmother's estate went to you mother. She gave away a painting from her mother's estate to your cousin, with the "understanding" that it must remain in the family. Cousin sold the painting for a bundle. IRS wants it's piece of the action. Is IRS trying to collect estate taxes or capital gains taxes?
If it's estate taxes, the estate is liable, but your mother and probably your cousin would be expected to contribute to the estate tax bill if there were not enough assets left in the estate to satisfy the IRS.
If it's capital gains taxes, only your cousin would be liable; if the transfer from your mother to your cousin was completed, your cousin took your mother's tax basis in the painting, and is liable to the IRS for taxes on the difference between the estate valuation and the proceeds of the sale.
The IRS may want to take the position that the estate valuation of the painting was wrong, as evidenced by a contemporaneous sale of the painting in an arms length transaction; it's possible that estate taxes on the difference would be greater that capital gains taxes on the difference, and the IRS is going to collect the most it can get away with. If they're going after the estate, the executor should consult legal counsel for the battle.
There may or may not have been a contract that prevented the sale; there may or may not have been any evidence other than the word of your mother and aunt that the gift to your consin was conditional. If that's the case, your cousin did nothing legally wrong to sell.
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