[WSBAPT] Washington QTIP Funding, valuation, and payment upon death of first spouse

[Steve Waltar]

Dear Colleagues,

 

Facts  

Combined Estate is north of $5 million – so let’s say $6 million for
discussion purposes ($3M for each spouse).  Clients hired me to do a
restatement of their living trust but specifically NOT to do funding – so
you guessed it, the trust was not funded very well.  I am conducting a
probate and have some procedural and tax questions.  I know the PR can
deed real properties into the name of the joint trust (Will pours over
into joint trust).

 

First Question: Deeding Directly to Credit Shelter (sub-trust)

 

I am wondering if it is possible, even advisable, to have the PR deeds
directly into the sub-trusts – like the credit shelter trust in the joint
trust and/or the WA-QTIP Trust?  I believe technically the PR deed should
be into the joint trust using the Letters Testamentary and one WAC code,
and then have the Trustee(s) of the joint trust do a Trustee Deed into the
appropriate sub-trust (Family Credit shelter Trust and/or WA-QTIP/Marital
Trust) using a different WAC cite.  But both such transfers have
exemptions from excise taxes and simply cause additional recording costs.
IS THERE ANY DANGER IN GOING DIRECTLY FROM PR DEED INTO AN APPROPRIATE
SUB-TRUST OF THE JOINT LIVING TRUST?

 

Second Question: Fractionalization

 

I believe the Huber and Bonner cases allow for a discount from
fractionalization when real property is place partly in the Federal Exempt
-1 trust (CST) and partly in the Marital Deduction/WAQTIP TRUST {for
amounts exceeding the Washington State $2M exemption).  Are people using
15% as an appropriate discount or something else?  Also, would a discount
also be appropriate if one of those two irrevocable trusts owned a
fraction of the real property and so did the Survivor or the Survivor’s
Trust?  In this case, various sub-trusts require more than one trustee to
act so arguably a discount may be appropriate.  Do you agree?  If so,
would it be a somewhat lesser discount or really the same as a split
between the Federal Trust -1 and the WAQTIP/Marital Trust – 2?

 

Final/Third Question: Estate Tax Credit

 

Is there any Washington State estate tax credit available IF the surviving
spouse chooses to actually pay Washington State estate taxes now, when
filing the Washington Inheritance Tax Form following the death of first
spouse à if surviving spouse dies fairly soon and survivor’s estate has to
pay Washington State Estate taxes?

 

Stephen M. Waltar, PS

 <http://www.waltar.com/>  

Estate Planning Law

1750 - 112th Avenue NE, Suite C245

Bellevue, WA  98004

(425) 455-6788

 <http://www.waltar.com/> www.waltar.com 

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