[WSBAPT] RE Excise Tax question

Wed May 18 16:50:10 PDT 2016

If the client is the beneficiary sounds like you just do the deed as an inheritance/gift, no debt on the property and the affidavit just cites the inheritance/gift exemption and I don’t know why you would reference debt relief in the affidavit. 

If client is not the beneficiary and is receiving cod then isn't client  transferring consideration by cancelling the debt, even though there is no technical debt relief by the transfer because of absence of encumbrance against the property?

What I don’t see from the facts is why is the trust giving the client a note each year?  doesn’t the client owe the trust some rent for using its 1/2?  Don’t you have to figure out what the balance between fair rent due the trust and debt paid by the client for the trust’s 1/2 is to know whether and how much cod there is, if any? 

If client is the bene, who cares, but if there are other bene’s then the value of fmv 1/2 compared to 1/2 of expenses paid has to be figured out and that answers the consideration question for the affidavit.  Doesn’t it?  Make sense or am I missing something?     

From: Patrick J. Galloway 
Sent: Wednesday, May 18, 2016 2:58 PM
To: WSBA Probate & Trust Listserv 
Subject: Re: [WSBAPT] RE Excise Tax question

This one has me curious. I am not sure I understand the fact pattern or the estate planning strategy that was being implemented. Is there a tax benefit that was gained from the promissory notes? Is this an attempt to avoid claims of other beneficiaries of the trust? Is the client not a beneficiary of the trust? 

Can the trust simply make the distribution and dissolve? I am not sure why you would need to pay REET on a gift/inheritance and what the benefit of making the transfer for consideration is. Just looking for some education from the group on this one.

Thanks,

Patrick J. Galloway

Advance Legal Services, PLLC

8113 W. Quinault Ave. Suite 101

Kennewick, WA 99336

(509) 851-7884

 www.alsnorthwest.com

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From: mike at winslegal.com
To: wsbapt at lists.wsbarppt.com
Date: Wed, 18 May 2016 14:06:27 -0700
Subject: Re: [WSBAPT] RE Excise Tax question

Under the provisions of the Real Estate Excise Tax rules the transfer of the interest is for value, equal to the relief from debt, so would be subject to tax as a “sale”. If there is remaining debt, that debt is not part of the consideration paid for the transfer.

http://app.leg.wa.gov/wac/default.aspx?cite=458-61A-102

see the definition of consideration  and sale.

Michael A. Winslow

1204 Cleveland Ave.

Mount Vernon, WA 98273

Ph. 360-336-3321

Em. Mike at winslegal.com

This message is from an attorney, so it’s confidential. If you are not the intended recipient, it’s too late to stop reading this message, but you may not use it for any improper purpose. Huge Disclaimer available upon request.

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eden Rubenstein Toner
Sent: Wednesday, May 18, 2016 1:28 PM
To: WSBA PT list
Subject: [WSBAPT] RE Excise Tax question

I’m trying to figure out the RE excise tax computation in this situation:  Client owns ½ interest in property.  A testamentary trust of which client is Trustee owns the other ½.  There are no other assets in the trust.  Client occupies the property and has paid mortgage, taxes, insurance and all expenses for many years, keeping track of all payments and issuing a promissory note from the trust to client each year.  The trust is now indebted to client for more than the value of the trust’s interest in the property.  Client wants to deed the property from the trust to client in full satisfaction of the debt, despite the fact that the debt is greater than the value of the property.

Questions—is tax due on the full amount of the debt being satisfied, or just the actual amount satisfied?  Does it matter that the debt is not secured by the property?  And if client continues to pay the full amount of the mortgage, is half the outstanding mortgage value part of the excise tax computation?

Thank you in advance for any guidance.

Eden

Eden Rubenstein Toner

Attorney at Law

1600-B SW Dash Point Road, #163

Federal Way, WA 98023

phone 206-953-4485

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