Farmer property settlement

[DaveO]

Client, a farmer, divorces in 2007. Property settlement with ex-wife requires a $10,000 payment annually for 5 years. Client dies in 2008 after making 2 payments. He also has $50,000 of grain on a contract to sell in 2009. Attorney advises that the grain income belongs on the estate 1041. The payments due the ex-wife are binding on his heirs. Question is, are the remaining payments a deduction to the estate if paid from the proceeds of the grain sale?

[Burke]

Were these payments being treated as alimony? Was the decedent deducting them on his tax return? If so, the remaining amount would be a Deduction in Respect of a Decedent, and could be deducted from the estate income tax return. If they were not alimony, but just a property settlement on the installment basis, then the remaining payments are an obligation of the estate, but not an estate income tax deduction. It does not matter if it is paid from the grain sale or not. The grain sale would go into the estate with any other assets, cash or otherwise, and the obligation paid from whatever assets are there.

[DaveO]

Thanks Burke, The payments were not alimony. Simply the division of the value of the land. I don't practice in this area much so wasn't sure if the nature of the obilgation would change once it was in the estate. The grain is of course, creating an income tax liability for the heirs while the payment of the property settlement to the ex-wife will consume the cash they would use to pay their taxes with.