[WSBAPT] REET Exempt for Non pro-rata distribution of probate and non-probate assets

Tue Jun 27 12:16:39 PDT 2017

Folks- I have a related REET exemption issue: Probate includes 2 pieces of
real property specifically devised. The two beneficiaries want to swap
property per TEDRA with an equalizing amount of less than $50k going to one
of the beneficiaries. The rub is that there is not enough other probate
assets to do so, but plenty of non-probate assets. As a result, WAC
458-61A-202 examples (4)C and 5C don't cleanly/clearly  apply. With TEDRA,
might the court order exemption apply ( (6)(g))? Any other ideas? Paying the
tax on less than $50k consideration certainly wouldn't be the end of the
world but if there clearly is an exemption, we'd jump on it. Thanks in
advance for any input, Cy 

Cyrus W. Field, Attorney at Law (admitted in Washington and Oregon)

phone: 360-472-1223 Mail: POB 367, Shaw Island, WA 98286 Office: 640 Mullis
St. Friday Harbor, WA

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From: wsbapt-bounces at lists.wsbarppt.com
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Mike Winslow
Sent: Tuesday, June 27, 2017 11:27 AM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] Community property inheritance question

My understanding is that all county treasurers will not change the name on
the tax statements to only the surviving spouse without a Lack of Probate
Affidavit and a Real Estate Excise Tax Affidavit. This is the case in the
four counties in which I practice.

See WAC 458-61A-202

Inheritance or devise.

(1) Introduction. Transfers of real property through a devise by will or
inheritance are not subject to the real estate excise tax. For the purpose
of this exemption, it does not matter whether the real property transferred
was encumbered by underlying debt at the time it was inherited or devised.

(2) Definitions. For the purposes of this rule, the following definitions
apply:

(a) "Heir" means a person, including the surviving spouse or surviving
domestic partner, who is entitled under the statutes of intestate succession
to the real and personal property of a decedent on the decedent's death
intestate;

(b) "Lack of probate affidavit" means a signed and notarized document
declaring that the affiant or affiants are the rightful heir or heirs to the
property and containing the following information:

(i) The names of the affiant or affiants;

(ii) The relationship of the affiant or affiants to the decedent;

(iii) The names of all other heirs of the decedent living at the time of the
decedent's death;

(iv) A description of the real property;

(v) Whether the decedent left a will that includes a devise of real
property; and

(vi) Any other information the department may require.

(c) "Nonpro rata distribution" is a distribution in which the transfer of
real property to the heirs or devisees may not be in proportion to their
interests.

(3) Examples. This rule contains examples that identify a number of facts
and then state a conclusion. These examples should be used only as a general
guide. The tax results of other situations must be determined after a review
of all of the facts and circumstances.

(4) Nonpro rata distributions. A nonpro rata distribution made by a personal
representative of a probated estate or by the trustee of a trust is not
subject to the real estate excise tax if:

(a) The transfer is authorized under the nonintervention powers of a
personal representative under RCW 11.68.090
<http://app.leg.wa.gov/RCW/default.aspx?cite=11.68.090>  or under the nonpro
rata distribution powers of a trustee under RCW 11.98.070
<http://app.leg.wa.gov/RCW/default.aspx?cite=11.98.070> (15); and

(b) If no consideration is given to the personal representative or the
trustee for the transfer.

For the purpose of this rule, consideration does not include the
indebtedness balance of any real property that is encumbered by a security
lien.

(c) Example 1. Aunt Mary wills her entire estate equally to her three
nieces, Meg, Beth, and Jo. The estate consists of her primary residence, a
cottage at the ocean, and significant cash assets, among other things.
Rather than take title to the two parcels of real estate in all three names,
the estate may be distributed by deeding the primary residence to Meg, the
oceanfront property to Beth, and the majority of the cash assets to Jo.

(5) Subsequent transfers. A transfer of property from an heir to a third
party is subject to the real estate excise tax.

(a) Example 2. Steve inherits real property from his mother's estate. He
sells the property to his son for $50,000. The transfer of the property from
the estate to Steve is exempt from real estate excise tax. The subsequent
sale of the property to his son is a taxable event, and real estate excise
tax is due based upon the full sales price of $50,000.

(b) Example 3. Susan inherits real property from her father's estate. She
decides to sell it to a friend on a real estate contract for $100,000. Real
estate excise tax is due on the $100,000.

(c) Example 4. Sheri and her two sisters inherit their father's home, valued
at $180,000, in equal portions. Sheri wants sole ownership of the home, but
there are not "in-kind" assets of sufficient value to be distributed by the
personal representative to her two sisters in a nonpro rata distribution. In
order to take title directly from the personal representative, Sheri pays
each of her sisters $60,000, and they quitclaim their right to the property
under the will. Real estate excise tax is due on the total of $120,000 paid
for the property.

(6) Exemptions and required documentation. A transfer of real property
through a devise by will or inheritance is exempt from the real estate
excise tax for the following types of transfers. Refer to WAC 458-61A-303
<http://app.leg.wa.gov/wac/default.aspx?cite=458-61A-303>  (Affidavit) to
determine if a real estate excise tax affidavit is required to document the
exempt transfers. Additional documentation may be required to substantiate
each exemption, and must be provided to the county treasurer of the county
in which the real property is located and recorded with the county auditor:

(a) Community property agreement or right of survivorship. If the transfer
of real property to a surviving spouse or surviving domestic partner is in
accordance with a community property agreement or right of survivorship
clause, copies of the recorded agreement and a certified copy of the death
certificate are required.

(b) Joint tenants with rights of survivorship and remainder interests. If
real property is transferred upon the death of a joint tenant to the
remaining joint tenants under right of survivorship, a certified copy of the
death certificate is required.

(c) Life estates and remainder interests. The transfer of a life estate to
the grantor with a remainder interest to another party is not a taxable
transfer if no consideration passes.

Example 5. Nate and Libby convey their property to their son, Rex, and
retain a life estate. The transaction is not subject to real estate excise
tax because Rex pays no consideration. Upon the deaths of Nate and Libby,
the title will vest in Rex and no real estate excise tax is due. However, if
Nate and Libby convey their property to Rex, while retaining a life estate,
and Rex pays any consideration for his future interest, the transaction is
taxable. Real estate excise tax is due on the total consideration paid.

(d) Transfer on death deeds. If the transfer of real property is pursuant to
a previously recorded transfer on death deed, upon the death of the
transferor to the beneficiary(ies) named in the transfer on death deed, a
certified copy of the death certificate is required. However, if the
transfer of real property pursuant to a transfer on death deed satisfies a
contractual obligation of the transferor owed to the beneficiary(ies)
designated in the transfer on death deed, real estate excise tax is due on
the transfer.

(e) Trusts. If real property is transferred under the terms of a trust
instrument, a certified copy of the death certificate and a copy of that
portion of the trust instrument showing the authority of the grantor are
required. For additional information on the application of real estate
excise tax to transfers of real property under the terms of a trust, see WAC
458-61A-210 <http://app.leg.wa.gov/wac/default.aspx?cite=458-61A-210>
(Irrevocable trusts) and WAC 458-61A-211
<http://app.leg.wa.gov/wac/default.aspx?cite=458-61A-211>  (Mere change in
identity or form-Family corporations and partnerships).

(f) Probate. For real property transferred under a probated will, a
certified copy of the letters testamentary, or in the case of intestate
administration, a certified copy of the letters of administration, showing
that the grantor is the court appointed executor/executrix or administrator
is required.

(g) Court order. If real property is transferred pursuant to a court order,
a certified copy of the court order requiring the transfer of property and
confirming that the grantor is required to do so under the terms of the
order is required.

(h) Community property interest. If the community property interest of the
decedent is transferred to a surviving spouse or surviving domestic partner
absent the documentation described in (a), (b), (e), (f), or (g) of this
subsection, a certified copy of the death certificate and a signed lack of
probate affidavit from the surviving spouse or surviving domestic partner
affirming that he or she is the sole and rightful heir to the property are
required. Refer to the department's web site at dor.wa.gov for an example of
the lack of probate affidavit that may be used.

(i) Nonprobated will or operation of law. If the property is transferred to
one or more heirs by operation of law, or transferred under a will that has
not been probated, but absent the documentation described in (a), (b), (e),
(f), or (g) of this subsection, a certified copy of the death certificate
and a signed lack of probate affidavit affirming that the affiant or
affiants are the sole and rightful heirs to the property are required. When
the property is transferred and the decedent-transferor also inherited the
property from his or her spouse or domestic partner, but never transferred
title to the property into the decedent-transferor's name, the transferee(s)
must provide:

(i) A certified copy of the death certificate for the decedent-transferor;

(ii) A certified copy of the death certificate for the spouse or domestic
partner from whom the decedent-transferor inherited the real property; and

(iii) A lack of probate affidavit affirming that the affiant or affiants are
the rightful heirs to the property.

Michael A. Winslow

1204 Cleveland Ave.

Mount Vernon, WA 98273

Ph. 360-336-3321

Em. Mike at winslegal.com

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From: wsbapt-bounces at lists.wsbarppt.com
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Lisa E Schuchman
Sent: Tuesday, June 27, 2017 9:35 AM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Community property inheritance question

That's a good idea, John.  My client is very sure about intestacy, but this
is good backup.

Lisa E. Schuchman
206-960-4212
www.lisaschuchman.com <http://www.lisaschuchman.com/> 

I learn, I give. - Gloria Steinem

NOTE: I do not use encrypted email.  Messages sent to or from my office via
email are not secure and may not be protected by attorney-client privilege.
This email address is not monitored at all times.  If your matter is urgent,
please phone my office during regular business hours.  

Any tax advice included in this document and its attachments was not
intended or written to be used, and it cannot be used, for the purpose of
avoiding penalties under the Internal Revenue Code.

P  Please consider the trees before printing this document

From: wsbapt-bounces at lists.wsbarppt.com
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John McCrady
Sent: Tuesday, June 27, 2017 8:52 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Community property inheritance question

I don't know how much fact finding has been done to this point; but I would
be concerned about a future discovery of the husband's will.  In these
situations I like to get one or more of the husband's kids to execute the
lack of probate affidavit, attesting that there is no known will.   

John McCrady

Counsel

Puget Sound Title Company

5350 Orchard Street West

University Place WA 98466

253-476-5721

From: wsbapt-bounces at lists.wsbarppt.com
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Lisa E Schuchman
Sent: Monday, June 26, 2017 4:32 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Community property inheritance question

A client bought a home with her husband in 1991.  This was a second marriage
for both and they both had kids.  He died intestate in 2007, and she just
died testate.  Her estate is pretty simple and her only heir is her
daughter.  Now we need to clear title to the home, which I believe would be
community property and would belong to the first decedent's surviving spouse
(my client).  Is this as simple as an affidavit of lack of probate?  

Thanks for your thoughts on this.

Lisa E. Schuchman
206-960-4212
www.lisaschuchman.com <http://www.lisaschuchman.com/> 

I learn, I give. - Gloria Steinem

NOTE: I do not use encrypted email.  Messages sent to or from my office via
email are not secure and may not be protected by attorney-client privilege.
This email address is not monitored at all times.  If your matter is urgent,
please phone my office during regular business hours.  

Any tax advice included in this document and its attachments was not
intended or written to be used, and it cannot be used, for the purpose of
avoiding penalties under the Internal Revenue Code.

P  Please consider the trees before printing this document

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