California Decedent’s Estates And Creditor’s Claims

California Probate News Flash: The California Assembly Committee on Judiciary, in order to help facilitate the filing of tax claims and the collection of California state income tax, recently held a hearing asking whether a decedent’s estate should provide notice of the probate to the Franchise Tax Board.

This bill, sponsored by the California Franchise Tax Board (FTB), requires that the personal representative of an estate notify the FTB of the probate proceedings within 90 days of when letters are first issued for the estate. The bill also requires California estates, for which a petition for final distribution has not been issued by January 1, 2008, to provide FTB with notice within 90 days of January 1, 2008. This should allow FTB to make any outstanding claims against the estate, and, according to the author, help reduce the amount of uncollected taxes.

Current law provides that:

(i) a claim by a public entity against an estate must be filed within the time provided or is barred. (Probate Code Section 9200);

(ii) requires the FTB to mail notice assessing taxes and commence any proceeding in court within 18 months after written request is filed (after the tax return is made) by the fiduciary of the estate or trust. (Revenue & Taxation Code Section 19517); and

(iii) requires, within 90 days of the date probate letters are first issued, the general personal representative or estate attorney of a decedent’s estate to provide notice to specified public entities, including Health Services and the California Victim Compensation Board, of the administration of the decedent’s estate. These public entities then have four months after notice is received to file a claim or pursue a collection. (Probate Code Section 9202)

According to the bill’s author, an estate representative often does not know a decedent’s financial affairs and, as a result, is unable to resolve tax obligations. This bill will codify a process that would assure that an estate representative discovers and resolves a decedent’s income tax obligation, thus helping to close the tax gap. The author believes this information allows FTB to make any outstanding claims against the estate and help reduce the amount of uncollected taxes.

Currently, if it is known that a claim is likely, a personal representative of an estate being probated is required to notify the directors of Health Services and the California Victim Compensation and Government Claims Board of the decedent’s death within 90 days of when letters for probate administration are first issued. The directors then have four months after receiving notice to make their claims or pursue collection of outstanding fines. This bill seeks to expand that notice requirement to FTB, but does not limit the time period by which FTB has to make a claim against the estate.