[WSBAPT] California Bypass Trust

Wed Mar 4 09:03:31 PST 2020

Hello All and Phil in particular ~

Sometimes I talk off the cuff and don't complete my thoughts.

  1.  If the document provides for Federal Funding, and given the high exemption amounts and dsue process, a qtip election is made for a second step up in basis on the death of surviving spouse, that qtip amount will be pulled back into survivor's estate at death if a WA resident regardless of location.  Again the document would govern and have to allow the PR to make a QTIP on any Federal amount. I would probably look at age/health of survivor when funding any QTIP at the federal level.

I suppose the direct answer to your question is, if it is a true A/B trust funding, the amount that goes into the Federal "ByPass" will be pulled in or not pulled into the deceedants estate based on the terms of the trust - for example if there the surviving spouse has a general power of appointment - it's all in.  If it is a typical income trust/principal for HEMS, none should be pulled back in and the entire amount should be excluded on 2nd death.  The survivor would be required to file and pay based on his/her own estate.

Because you thought the amount might be limited to the exemption amount, my mind sort of jumped to qtip planning for income tax purposes.

  1.  If a Federal Return is filed, and a Federal QTIP election is made, I indicated I would contemplate make a WA return to try to make differing state/federal exemptions such that you could have a second step-up in basis for federal income taxes but a zero pull in for state purposes.  To be clear, this is an issue that is not clear.  What is clear is that the state of Washington allows differing QTIP elections (including 0%) from the Federal.  Will they accept a return from a nonresident that is protective in nature on the second spouse's death?  I don't know but I certainly would consider posturing myself in the best position possible to at least present the argument unless I found clear authority that prohibits such a filing - my bet would be that authority is not out there.

  1.  You are correct - a TEDRA cannot bind a party that has not signed off, and clearly you're not going to be visiting with the DOR.  I would suggest that this approach is still done often by practitioners in the tax world.

It all comes down to funding directions/tax elections that can be made.

Good Luck,

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Philip N. Jones
Sent: Monday, March 2, 2020 4:18 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] California Bypass Trust

In response to the numbered paragraphs:

  1.  I do not understand the last sentence of paragraph 1.  What amount would be pulled back in to Wife's estate, and why?
  2.  I can't see filing a Washington estate tax return for a California resident with no ties to Washington.
  3.  I doubt that a TEDRA agreement would bind the Washington Dept. of Revenue, although I am not sure they have an interest here.
  4.  Perhaps after the credit shelter trust is created in California, it could have its situs changed to Washington.  That is an income tax matter that most likely does not change the estate tax consequences.
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 Diane J. Kiepe
Sent: Monday, March 02, 2020 3:28 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] California Bypass Trust

So, there a couple issues that you want to think about.

  1.  It depends.  The first thing you need to do is read the document.  If it was a document that planned for funding up to the Federal exemption you are not limited by the state exemption in anyway.  But then when W dies that federal amount gets pulled back in and we don't like that.
  2.  I would contemplate filing a protective WA State Return with a zero QTIP election and a 100% WA State Exemption and including the Federal Return for that.
  3.  Another thought is to read the document and see if you can change situs before any funding.  Change the situs and then have all parties sign a TEDRA that might keep all interests protected but optimize state tax planning matters.
  4.  I would consider not using CA law to govern the new trust and calling it a CA Trust - CA is trying all sorts of new ways to tax income and if you don't relocate the situs of the trust I suspect they will try to tax it's income.  Plus the accounting rules in CA are burdensome I hear.  I am not licensed in CA.

These are just some thoughts that pop into mind - always happy to dialogue.

Best,

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 Lovie Bernardi
Sent: Monday, March 2, 2020 3:15 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] California Bypass Trust

Dear Listmates,

California resident, plans to move to Washington. Husband died, they had an A/B trust, total assets of couple approximately $13 million. Client's California attorney calls to find out how much of husband's share can be sheltered from Washington estate tax if it put into a bypass trust in California prior to move. Is the amount sheltered from Washington estate tax limited to Washington's exemption amount if surviving spouse is domiciled in Washington at the time of her death?

Lovie

Lovie L. Bernardi
Flaherty & Bernardi, PLLC
3600 15th Avenue West #205
Seattle, WA  98119
(206) 682-2616

lovie at fb-lawfirm.com<mailto:joni at sbfirm.com>
http://fb-lawfirm.com<http://sbfirm.com/>

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