[WSBAPT] [ADV] Re: Special Notice - Estate tax treatment of real property owned by business entities

[Thomas M. Culbertson]

Regarding the history of the business purpose test, DOR brought this to the WSBA Estate & Gift Tax Committee as a trial balloon quite a few years ago.  The response from the Committee of overwhelmingly negative—there is simply no authority in the statute for such a test, and DOR would lose revenue from all the Washington decedents with non-business LLCs holding recreational property in other states (around here, primarily Idaho lake homes).  DOR representatives seemed never to have thought of that.  The idea seemed dead for maybe a year or two, but then the business purpose test showed up in the instructions to the WA estate tax return.  Depending upon how cynical you are, you might think DOR decided they wouldn’t put the test in a WAC because there was no legal authority to do so, but they could quietly slip it into instructions to a form and then use it when they thought it advantageous. My understanding is that the issue came up again at an E&GT Committee meeting within the last year or so, the DOR rep at the meeting (who seems to have a better understanding of the estate tax than some of her predecessors) said she would look into it, and out came this notice.  I haven’t been as active on the E&GT Committee lately as I once was, so someone who is pretty active now may correct me on the more recent history.

________________________________________
THOMAS M. CULBERTSON  I  Lukins & Annis, PS
717 W. Sprague Ave, Suite 1600, Spokane, WA 99201
(509) 455-9555  I  fax (509) 363-2500  I  tculbertson at lukins.com<mailto:tculbertson at lukins.com>

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Cyrus Field
Sent: Friday, May 29, 2020 11:46 AM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] [ADV] Re: Special Notice - Estate tax treatment of real property owned by business entities

But doesn’t it depend where client is moving to? For instance, Oregon has just $1 million dollar exemption and Wa just under $2.2 million. Say Oregon resident owns RP in Washington and Oregon, each with FMV of $1 M. If Or resident puts Wa property in LLC, then Or gloms on to LLC interest as intangible property and will tax accordingly. But if interest left as real property (or placed in trust), it is effectively excluded from Oregon tax based on prorating formula. That was my understanding anyways but have not had to address issue for a while. Thanks for any enlightenment, 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> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Diane J. Kiepe
Sent: Friday, May 29, 2020 9:40 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [ADV] Re: [WSBAPT] Special Notice - Estate tax treatment of real property owned by business entities

The first two have assets includable for WA estate tax purposes because they hold intangibles here as residents.

The second two – now are not deemed to hold an intangible property because the LLC interest is what they own and that follows them to t heir state of residency.  Previously there was further analysis required (business vs nonbusiness purpose of property).

Remember too, for planning purposes, this addresses LLCs only, not trusts.

That is my reading – and my take away is people leaving WA to reside elsewhere but leave property here are  well served by placing the same in an LLC.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Karl Flaccus
Sent: Friday, May 29, 2020 9:32 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Special Notice - Estate tax treatment of real property owned by business entities

Maybe someone could provide an explanation of what this means in these circumstances:

A Washington resident owns a nonbusiness out-of-state vacation home in an LLC.
A Washington resident owns an out-of-state rental home in an LLC.
An out-of-state resident owns a Washington vacation home in an LLC.
An out-of-state resident owns a Washington rental home in an LLC.

Thanks in advance.

Karl

FLACCUS LAW
7010 35th Ave. N.E.
Seattle, Washington  98115
206 523-0297

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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Philip N. Jones
Sent: Thursday, May 28, 2020 4:27 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Special Notice - Estate tax treatment of real property owned by business entities

A very interesting new development.  Washington and Oregon are apparently now on the same page on this issue.
Phil Jones
Portland, OR

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Derek Jensen
Sent: Thursday, May 28, 2020 4:22 PM
To: wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] FW: Special Notice - Estate tax treatment of real property owned by business entities

Just received in my in-box: New treatment for real property owned by business entities.

Sincerely,

Derek W. Jensen, JD, LLM
Managing Attorney
Jensen Law Office, PLLC


From: Corinna O'Connor <corinnao at DOR.WA.GOV<mailto:corinnao at DOR.WA.GOV>>
Sent: Thursday, May 28, 2020 4:10 PM
To: ESTATE-TAX-NOTIFICATIONS at LISTSERV.DOR.WA.GOV<mailto:ESTATE-TAX-NOTIFICATIONS at LISTSERV.DOR.WA.GOV>
Subject: Special Notice - Estate tax treatment of real property owned by business entities


The Department of Revenue has issued a special notice in regards to the estate tax treatment of real property owned by business entities.

This special notice is effective June 1, 2020 and can be found by clicking the following link.

https://dor.wa.gov/sites/default/files/legacy/Docs/Pubs/SpecialNotices/2020/sn_20_EstateTaxTreatment.pdf<https://dor.wa.gov/sites/default/files/legacy/Docs/Pubs/SpecialNotices/2020/sn_20_EstateTaxTreatment.pdf>

The special notice is located under the Forms & Publication section of the Estate Tax section on the department's homepage, as well.

https://dor.wa.gov/taxes-rates/other-taxes/estate-tax<https://dor.wa.gov/taxes-rates/other-taxes/estate-tax>

For questions, please call the estate tax team at 360-534-1503, option 2, or send an e-mail to estates at dor.wa.gov<mailto:estates at dor.wa.gov>.
To join or leave this list, change your settings, or view the the list archives, go to https://listserv.wa.gov/cgi-bin/wa?A0=estate-tax-notifications<https://listserv.wa.gov/cgi-bin/wa?A0=estate-tax-notifications>

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