Charles Rubin discusses the case of Duckett v. Enomoto. This case refers to Code Section 6321 which imposes a federal tax lien for taxes that are not paid upon “all property and rights to property, whether real or personal” belonging to the taxpayer and specifically concerns a beneficiary’s interest in a trust and whether or not this is an item that the IRS can lien. According to the article,

The court noted that the case law is mixed on whether a lienable property interest arises from such a clause. In the end, it concluded that there was an interest that could be liened.

The court noted some criteria in these cases that favor the finding of a lien. The first is that there is mandatory language in the clause, such as use of the word “shall.” More particularly, courts note that such clauses often require payment (“shall pay”) and then leave the amount up to the discretion of the trustee. While I do not follow the logic, somehow this favors a lien arising more than if the trustee was given discretion on whether to pay – although the practical result as to the trustee’s authority is probably about the same. Having more than one current beneficiary is a fact that does not support the imposition of the lien.

Read the entire post here: Discretionary Trust Interest Held Subject to Federal Tax Lien

Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal