[WSBARP] Life Estates

Fri Jan 17 11:20:41 PST 2020

I think what you did works: "O grants and conveys the property to X, reserving a life estate to O for O's life."

I think the wording that would literally follow WAC 458-61A-202(6)(c)<https://apps.leg.wa.gov/wac/default.aspx?cite=458-61A-202> would be "O grants and conveys to O a life estate for O's life, remainder to X." That WAC reads: "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."

Personally, I prefer your wording; reservation of a life estate makes more logical sense to me than an artificial conveyance "to self for life."

That said, I think this might actually be a mistake/redundancy in the WAC. I think that WAC 458-61A-202(6)(c) is merely a special case of a gift (no consideration passes). I think it was drafted on the assumption that a grantor life estate is simply an estate planning device and so nothing "really" passes to X until O dies. But in terms of property estates, there is a transfer to a new person--the conveyance of a remainder to X. The remainder is fully vested: it is not contingent on anything. It has market value, and is alienable and devisable (X could sell and convey the remainder interest to Y, or leave it to Y in X's Will). See e.g. Hood v. Cline, 35 Wn.2d 192 (1949) cited in the Real Property Deskbook on life estates. So really, there is a present "transfer of ownership of or title to real property" and, if consideration is paid, it should be a taxable "sale" under the governing statute, RCW 82.45.010(1)<https://app.leg.wa.gov/RCW/default.aspx?cite=82.45&full=true#82.45.010>. If it's done for no consideration, it should be exempt as a gift under WAC 458-61A-201<https://apps.leg.wa.gov/wac/default.aspx?cite=458-61A-201>.

So WAC 458-61A-202(6)(c) appears to do no more than say that Grantor may transfer a life estate remainder to a Grantee, exempt from REET, if no consideration passes. Which is really just saying, it's exempt if it's a gift. Then, when Grantor dies, there is another transfer to Grantee, by the life estate "vanishing" or merging with the remainder to give fee simple absolute to Grantee, and that also is exempt, as an inheritance.

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Timothy Lehr
Sent: Thursday, January 16, 2020 4:53 PM
To: wsbarp at lists.wsbarppt.com
Subject: [WSBARP] Life Estates

All,

A member of my staff was recently questioned by our county treasurer's office regarding the WAC exemption I put on a REETA for a life estate deed and it brought up a broader question. I generally use Transfer on Death Deeds more frequently than life estates, but every situation is unique. I am now questioning my wording in the life estate document.

My first question - Is this the best way to create a life estate? Mom and Dad own property as h&w. They want to grant property to son but retain a life estate. My quit claim deed sets out "Grantor, mom and dad, for and in consideration for love and affection hereby conveys...to son, as his separate property the followed described real estate..." Then, below the legal description "Reserving to the Grantors a Life Estate in said premises for the Life of Grantors, Mom and Dad."

>From what I've read, son has a "remainder interest" in the property and it does not "vest" until grantors have died or voluntarily left. Is that right? My initial thought is the treasurer's confusion is that conveyance language certainly looks life a gift, but for the language of Grantors reserving the life estate.

Next question - I used WAC 458-61A-202(6)(c) as exemption. The treasurer's office would not accept and said my scenario calls for a "gift" exemption. This again may be due to the conveyance language looking like a gift. But, the example under the life estate WAC code exemption is literally the exact situation which I listed above.

Thoughts on that or how I can improve granting life estates in the future?

Timothy C. Lehr
Attorney at Law
Stiles Law Inc., P.S.

p:   360.855.0131
e:   timothy at stileslaw.com<mailto:timothy at stileslaw.com>
w:  www.stileslaw.com<http://www.stileslaw.com>

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