Massachusetts Agencies

Life Estate: Death Tax Lien

Liens, Special

We all agree that if the property was conveyed by the grantor for an adequate consideration it would not be included in the gross estate, even if he died right after then transaction..

However, if the conveyance by the grantor was not for an adequate consideration, then the property will be included in the gross estate for tax purposes. The question for conveyancers, however, if whether such inclusion in the estate results in a lien against the property. That depends on the structure of the transaction. Under G.L.c. 65C, §14(b) —

  1. If no life estate was reserved by the grantor and the deed was recorded before the grantor's death, a subsequent conveyance by the immediate or a mediate transferee to a bona fide purchaser for value will divest the property of the estate tax lien.;
  2. If a life estate was reserved[1] a subsequent conveyance to a bona fide purchaser for value will not divest the lien.

So, if X owns the property and conveys the fee to B and a life estate to C, C's death will not trigger a death tax lien. But if X owns the property and conveys the fee to B but reserves a life estate then X's death will trigger a death tax lien. The lien will be divested, however, upon a transfer as above described to a purchaser for value.

1 The statute characterizes this as a "disclosing [of] an intention that [the conveyance] take effect in possession or enjoyment at or after the [the grantor's] death." G.L.c. 65C.