Thursday, January 22, 2015

Hey, why do I have to escrow money if the estate paid a deposit for PA inheritance taxes?

Hi, Diane,
I really enjoy your blog. 
My brother passed away.  We are selling his house.  As you have mentioned on your blog, the title agent is escrowing Pa Inheritance Tax.  The problem is, we have already paid the tax of $6546.  The title agent is escrowing $16,200.  There is no negotiating.  The buyer is a cash buyer and is not buying title insurance.  So when the title agent said "its the title insurance company" there is no title insurance company.  At least that's what I think I've learned from reading your blog.
We paid the tax with the 3% discount but can't file the return until the attorney gets some additional things done.  The attorney talked to the title agent but it didn't seem to matter.
I thought I would check with you to get your opinion.
Thank you for all your help,

Hi, J:

Cash buyers often buy title insurance so there may be insurance involved.  If they aren't buying insurance and they are working with an attorney, the attorney might be giving a personal guarantee of title.  If they are working with a non-attorney title insurance agent and that agent is not issuing a title insurance policy, the title insurance agent is acting outside of their license to conduct business.

All that said, we would also require an escrow if the inheritance tax return isn't filed even though a payment has been made.  You cannot believe how many returns are improperly filed or not filed at all.  We regularly have abandoned inheritance tax escrows.

Some title agents will accept an attorney letter of guarantee that they will file the proper return and pay all taxes.  This is a personal guarantee from the attorney.  We accept these letters if we have a high comfort level, but agents are not required to accept guarantees.

The bottom line is that until that inheritance tax return is properly filed and the title agent can surmise that all taxes have been paid, they have a right to refuse to insure.  The alternative to an escrow is to postpone closing until the return is filed. Most attorneys can hustle and get a return prepped quickly if they need to.  If your attorney can't get this done prior to closing, perhaps this gives an incentive to get it done quickly for the escrow release.

Hope this helps.  BTW The amount of these escrows are not the amount of estimated tax.  A title agent till guesstimate the tax based on the relationship of the heirs to the deceased, then they will increase the escrow to a point that provides an incentive to the estate to get the job done quickly.  No title agent wants to hold an escrow.  It's a bunch of work that we don't really get paid for.  So, on that note, they are actually trying to help you close, rather than postpone.  ;)