Ask a Maritime Attorney: Probate, Taxes and Selling a Boat

Question:

I have a documented boat with some title problems. The boat was owned by my father who passed away last year. To complicate things, I have learned that he purchased the boat without paying sales or use tax, and the California State Board of Equalization recorded a Notice of Claim of Lien with the Coast Guard against the boat’s title. We would like to sell the boat, but I don’t know if I can sign a bill of sale on behalf of my deceased father, and I am concerned about how prospective buyers will react when they learn about the recorded tax lien. What can I do?

Answer

Our reader is confronted with two problems, one of which is relatively easy to solve. The other is not. We will start with the simpler of the two problems.

When a person dies, their heirs have a number of tools at their disposal to transfer property owned by the deceased. The initial problem is that the deceased person is not available to sign a bill of sale, so we must find a way to authorize his or her heirs to sign the paperwork used to transfer the property. The most basic procedure is to probate the estate.

When an estate is probated, the court appoints an executor to take charge of things, and to stand in the place of the deceased person to sign contracts and other documents. Even where a valid will was prepared, the executor will not automatically have the authority to sign papers unless and until that authorization is granted by a probate court. A probate is therefore necessary for all property transfers after death, unless some exception is available.

The most common exception to probate is probably where property is held by a revocable family trust. This requires some planning while the boat owner is still alive, and frankly it is something we all should look into. Unfortunately, it is not an option for our reader because the boat was in his father’s name without a trust.  He may, however, qualify for a statutory exemption.

Where property is held by an individual, California law allows for transfer without probate if the total value of all the transferred property does not exceed $166,250.00. This limit is calculated on the value of the entire estate, not just a single asset such as a boat. Under the procedures set forth in California Probate Code sections 13100 through 13116, the heirs of the deceased person may prepare an affidavit which describes the property and their relationship to the deceased. The affidavit may then be delivered to the Coast Guard with a Bill of Sale to transfer a documented vessel. If the value of his father’s property exceeds the limit, our reader may need to take steps to probate the estate.

Assuming he qualifies for a probate exemption, our reader still needs to deal with the tax lien.  The California Department of Tax and Fee Administration (the “CDTFA” – formerly the California Board of Equalization) administers the assessment and collection of sales and use tax on the sale and purchase of personal property in California. They have the power to seize and sell any property owned by a delinquent taxpayer. To facilitate this process, and to get the attention of the taxpayer prior to seizing a documented vessel, they will sometimes record a Notice of Claim of Lien with the Coast Guard. This is an unfortunate practice, because a tax lien relating to personal property is a personal obligation of the individual taxpayer, and a subsequent owner of a boat cannot be held responsible for payment.

Maritime lien law provides that the vessel and the owner are both responsible for payment of goods and services used to equip, maintain, and operate the vessel. The vessel itself may therefore be held responsible for payment regardless of who owns the boat, and a valid maritime lien will remain with that boat until the claim is satisfied. A tax lien, however, is not related to the operation of a vessel. It is therefore not a maritime lien and the vessel itself is not responsible for payment of the obligation. The taxpayer will remain personally liable for the obligation after he or she sells the boat, and the tax agency must look to the taxpayer’s other property for payment. But the new owner is not responsible for the obligation.

The limitations of a tax claim against a boat or other personal property are also reflected in California law, so we don’t need to rely upon maritime law for this.  California Government Code section 7170(c)(4)(B) provides that a state tax lien is not valid as to personal property against a subsequent owner, even a prior notice of the lien was filed.

A claim for unpaid taxes therefore should not be recorded against the boat’s Coast Guard title. Unfortunately, the Coast Guard will allow practically anything to be recorded against the title of a vessel, without investigation or proof that the instrument supports a valid claim. This is a significant problem with the recording system, but for reasons we will address in a future installment of this column the system is not likely to change anytime soon.

The claim of lien, whether it is valid or not, will be a problem for a subsequent owner, since any claim that is recorded with the Coast Guard will complicate any vessel financing or a future sale. Our reader should therefore contact the CDTFA and discuss the removal of the claim of lien. If they don’t comply, he will probably need to hire an attorney. The bottom line is that when a tax claim against a former owner is recorded, the new owner has little choice but to work with his or her attorney and the tax agency to remove the claim.

We always remind our readers to seek their own legal counsel, but in this case our reader may need to talk to three lawyers! A maritime lawyer to evaluate the title history and validity of the lien, a tax lawyer to work with the state agency, and a probate attorney to handle his father’s estate.

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is an adjunct professor of Admiralty Law, a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com,  or via email at [email protected].