[WSBAPT] Excise tax on inherited properties of FLP and RLT

[Marcus Fry]

To add to Mike’s thoughtful comments.  As long as the trust incorporates RCW 11.98.070, you have non pro rata powers.  You may need to open a probate to transfer the parents’ interests in the FLP to the RLT because the facts appear to suggest the parents are the partners.  Otherwise, I think you run into the problem if you are transferring straight from the FLP to the children and then children start horse trading between themselves or with the other assets of the RLT.


Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
P.O. Box 1689
Yakima, Washington  98907
Telephone:  (509) 248-7220
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From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Mike Winslow
Sent: Thursday, January 07, 2021 5:07 PM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] Excise tax on inherited properties of FLP and RLT

No specific experience with what you describe, but a couple of suggestions:

First, I would look at the RLT to see if non-prorata distributions are permitted from the parents’ trust. I would also look at the probate code, as I think there is a statute that allows non-prorata distributions (cannot cite off top).

Second, I wonder if the RLT really requires specific distributions of the properties equally to the kids. More likely it says that the kids receive equal shares of the trust assets, which could be completed under the non-prorata scheme.

Third, the properties in the FLP could possibly be deeded out of the FLP to parents’ RLT, as that may qualify as a non-recognition transaction. https://app.leg.wa.gov/wac/default.aspx?cite=458-61A-211
Once in the RLT, then proceed with the non-prorata distribution plan.

Revenue is always going to tell you then want excise tax.
I see potential to avoid a lot of excise tax with nine parcels being involved, and suggest this is worth looking at, and possibly even consulting with an excise tax specialist in one of the big firms.
This is all ‘off the top’, but based on dealing with a lot of excise tax exemptions.

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 Kira Rubel
Sent: Thursday, January 07, 2021 3:20 PM
To: WSBA Probate & Trust Listserv
Subject: [WSBAPT] Excise tax on inherited properties of FLP and RLT

Hello list!

I have three clients who inherited 9 properties from their now-deceased parents, out of the parents' Family Limited Partnership and the parents' living trust. Now, we're in the process of transferring title to each child's LLC or living trust.

The parents did not leave specific properties to specific kids, rather all properties were left to all three children. The three adult children decided among themselves how to divide up the properties (and cash). Each child is taking 3 properties in their entirety.

My office spoke with the DOR-Excise Tax department and they said we might have an excise tax problem for 2 reasons. One, all properties were left to all 3 kids to divy up as they please. Two, is it even possible to transfer the properties directly from the parents' FLP/RLT to each child's LLC or own living trust?

Has anyone done this in practice? I'm concerned about getting the WAC exemption correct!

Many thanks!

Kira M. Rubel, Esq.

*Licensed in CA and WA
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