[WSBAPT] Community Property- probate question

Fri Mar 7 15:42:04 PST 2014

Q1: I believe that to be correct. Al Montgomery, of Montgomery, Purdue,
Blankenship & Austin (www.mpba.com) was involved years ago in obtaining a
Letter Ruling along those lines. He also wrote “Underfunded Testamentary
Trusts and IRAs: Are Non-Pro Rata Distributions An Answer?,” Fall 1997
Real Property, Probate and Trust Section Newsletter. You could contact his
office (I’m taking liberties here) and ask for a reference to the Letter
Ruling.

Q2: I don’t see any harm, but don’t think such language is necessary, as I
believe you can accomplish the same objective under the powers granted to
PRs and Trustees by statute. 

One thing I have done, in smaller estates where tax issues don’t call for
a different action, however, is to have the decedent gift to the surviving
spouse the decedent’s one-half interest in any IRAs and Qualified Plans of
which the survivor is the participant. That’s done to prevent forcing the
survivor to liquidate plan assets in order to fund a decedent’s trust
where the total estate is largely tax-deferred arrangements. Those
situations tend to arise where the estate size is below federal and state
exemption limits. Since in today’s tax climate the survivor can hold up to
$2,000,000+, and where the surviving spouse can gift much more under
federal law, post-mortem planning can deal with the occasional problematic
situation. 

S 

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Sam Furgason

Samuel L. Furgason, Inc., P.S.

Estate Practice Limited to Existing Clients

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sam at furgasons.com 

From: wsbapt-owner at lists.wsbarppt.com
[mailto:wsbapt-owner at lists.wsbarppt.com] On Behalf Of Donna Calf Robe
Sent: Friday, March 07, 2014 2:02 PM
To: wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] Community Property- probate question

Greetings:

Facts and legal assumptions: PR is surviving spouse with non-intervention
powers.  A PR with non-interventions powers can make non-pro rata
distributions of property from an estate.  A PR also administers the
community property.  However, Washington follows the “item theory” of
community property, where each spouse is treated as owning a half interest
in each community asset (rather than the “aggregate theory” where each
spouse owns an undivided interest in the community as a whole, which
allows for a non-pro rata division of community property.)  In present
case, much of community assets are retirement accounts (primarily IRAs in
PR/H’s name).  PR wants to allocate non-retirement CP account assets to
estate and IRAs to himself.  Estate assets will pass to spousal trust.
According to the probate deskbook (citing to Carrieres v. Comm’r) a
non-pro rata distribution of community property between SS and estate
should not result in a taxable exchange.        

Question  1: So H can allocate his ½ interest in non-retirement account to
estate, in exchange for retaining full interest in retirement account in
his name (of equal value) and then entire non-retirement account can pass
to trust, correct? 

Question 2: I read a suggestion that a better option (for the future use)
is to have testator include power in Will that PR can make non-prorate
distributions and use aggregate method in distribution of CP, and say that
to the extent possible, the decedent’s interest in the surviving spouses
IRA should be allocated to SS in any non-prorata distribution.  Are others
including this language in their Wills, when appropriate?

Thanks,

Donna

Donna M. Calf Robe

Attorney at Law

2722 Eastlake Ave. E., Ste. 200

Seattle, Washington 98102-3143

Phone (206) 324-4300, extension 113

FAX (206) 324-3106

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