[WSBAPT] division of RLT a little late...

[John Creahan]

Hi Melinda,
Off the top of my head, it seems to me that several questions need to be answered before you can make any decisions about how to proceed. (Of course, you may have already answered some or all of these.)
First, what happened in 1999? Was Mom the PR? Did Dad's real property get retitled or is his name still on title?
Also, what should have happened in 1999? Depending on the will's language and the estate size, it's possible that there was no obligation to fund the CST. There 1999 federal exemption was $650,000, so a return should have been filed if the estate exceeded $1.3 million (assuming all community property). Was a return filed? Do you have a copy? Did the estate apply for an EIN for the CST?
Other questions: Are Dad's CST's beneficiaries the same as Mom's beneficiaries?
Has the property that would have funded the CST been producing income? How has this been reported?
Will Mom's estate (including the CST) exceed $5.4 million? If so, the CST would likely have saved estate taxes.
If the CST beneficiaries will not be negatively impacted and if there are no estate tax impacts, the failure to fund the CST may have no impact on the (non-IRS) beneficiaries. A TEDRA could potentially reform Dad's will.
If Mom's estate exceeds $5.4 million, the heirs may have to pay estate tax that could have been avoided.
As for the IRS, you will need to examine the overall tax impact. If the trust owns unproductive real property, the impacts may be minimal.
Finally, is this issue potentially going to cloud title and slow up the real estate sales?
Hope this helps,
John
John Creahan
john at cairn-law.com<mailto:john at cairn-law.com>
1325 4th Ave., Suite 940
Seattle, WA 98101
206-621-5848
www.cairn-law.com<http://www.cairn-law.com/>
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From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Melinda Grout
Sent: Monday, October 26, 2015 1:56 PM
To: WSBA Probate & Trust Listserv (wsbapt at lists.wsbarppt.com) <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] division of RLT a little late...

Good morning all.

Client has 1996 RLT that requires division into a Survivors Trust and Credit Shelter Trust.  The deceased spouse grantor/trustee died in 1999, but the survivor (client) never  divided into two trusts.  Also, another attorney did an Addendum in 2005, addressing only the Sections regarding the Survivor's Trust, without addressing the necessary division either way.  There was/is pretty valuable real estate involved, which was much less valuable up until this past couple of years when some was subdivided and sold to a developer, and the remainder is going through the same process now.  Client now wants to amend, again, the terms of distribution of the RLT.  Am I correct that the division of trusts needs to be addressed before simply creating a Second Addendum?

Is this essentially and initially a referral to a CPA to address past due and current returns, computing the division including factors re basis, etc, other tax implications, and help setting up a separate account?  It seems with the real estate doing what it has done, and is about to do, there is complexity to this that may be far above my pay grade.   Is this a complex matter best referred to someone who regularly handles these, and if so, who is doing this type of work?   I would truly appreciate some guidance.

Melinda
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