[WSBAPT] estate taxation of LLC interests

[Eric Nelsen]

Yikes--nice first post! I have no wisdom to offer but am looking forward to other responses.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1417 31st Ave South
Seattle WA  98144-3909
phone 206-625-0092
fax 206-625-9040

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Philip N. Jones
Sent: Thursday, March 15, 2018 4:26 PM
To: wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] estate taxation of LLC interests

I have been an Oregon-resident member of the WSBA for decades (I practice estate planning in Portland), and a member of this section for decades, but I have only now joined the estate/probate listserv.  I look forward to the future discussions.
So here is my first post.  This is a hypothetical; I do not really have this client.
Ralph lives in Washington.  He owns a vacation house in Bend, Oregon.  He puts the house in a single-member LLC.
Ralph promptly and expeditiously dies.
The Washington Department of Revenue states on their website and in their instructions to Addendum #4 of the Washington estate tax return that real estate in a non-true-business-purpose LLC will be taxed at its physical real estate location, which is Oregon.  So Washington does not include the vacation home in the Washington numerator of the fraction.
Oregon, on the other hand, in its regulations, honors LLCs regardless of business purpose, or lack thereof.  LLCs are intangible, Oregon says.  And Oregon does not tax intangibles of nonresidents.
So Ralph pays no Oregon or Washington estate tax on the vacation house.  Zero.  Zip.  Nada.
Or am I missing something here?
That's the good news.  Now let's reverse the situation.  George lives in Oregon and puts his Wenatchee vacation house in an LLC and then dies.  Washington will disregard the LLC and tax the Washington real estate.  Oregon will honor the LLC as an intangible and tax it to its resident decedent.
So it gets taxed in both states.  Which makes George unhappy.  Even though he is dead.
Or am I missing something here?
The mind reels.
Thanks,
Phil Jones

Philip N. Jones |Duffy Kekel LLP
111 SW 5th Ave, Suite 1500, Portland OR 97204
(503) 226-1371 (main)| (503) 226-3574 (fax)
pjones at duffykekel.com<mailto:pjones at duffykekel.com>

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