How Taxes Can Derail Your Probate Litigation Case

Estate, income, and property taxes could all significantly impact your probate litigation case in California. If not handled properly, these liabilities could cause delays, increase your costs, and even derail the entire process, particularly when you are trying to close a large estate.

Taxes may also drastically reduce the amount you and the other beneficiaries receive, making it a key concern for everyone involved. This means that it is important to understand just how taxes could impact your probate litigation case. Learn more now with this quick read.

Valuation Disputes

Whether you are the executor or you are waiting for your inheritance, valuation disputes could disrupt the proceedings. If a beneficiary challenges the estate’s value, the potential estate tax liability could lead to prolonged legal battles. Whether that individual believes the estate is over- or undervalued, this dispute could become a costly point of contention that you want to avoid if possible.

Capital Gains Disputes

Capital gains taxes on assets sold during the probate process, such as the decedent’s home, could also start disagreements among beneficiaries. If the property’s value increased significantly since the loss of your loved one, the resulting tax imposition could be substantial. Beneficiaries may also disagree on who should handle this tax burden and how.

Income Tax Liabilities

An estate’s personal representative is responsible for filing the decedent’s final income tax return. If they fail to submit these returns to the right agencies in a timely manner, the Internal Revenue Service (IRS) and the state’s Franchise Tax Board could impose severe penalties.

The last thing you want to do if you are trying to prevent delays is get into a dispute with the tax authorities. As well, some heirs may feel frustrated if an executor’s mistakes lead to additional liabilities and may sue for the mismanagement of the estate’s income taxes.

Federal Estate Tax Liabilities

While the state does not impose an estate tax, the federal government may impose this tax if the estate meets the threshold of $13.99 million per individual for 2025. In the event the estate exceeds this limit, the executor must file Form 706 and pay the taxes owed.

This process must be completed within nine months of the testator’s death. If this deadline passes unfulfilled, the IRS could impose penalties and interest or take collection action, such as placing a lien on the estate’s property.

Talk With a Probate Litigation Attorney About Estate Tax Challenges

Probate litigation could be a lengthy and complicated process. Hackard Law is your California-based trust and estate firm. Our compassionate attorneys can provide the legal guidance you need to understand how taxes could derail your probate litigation case.

We are here when you need help. We work on a contingency basis, so you do not have to pay us if we do not win your suit.