[WSBARP] Transfer of Property owned by 2 married couples as TIC to an LLC

[Eric Nelsen]

It sounds like they are not intending to recharacterize as separate property of A and C? The real estate is community property of each couple, and the LLC is community property?

In that case, even if A and C are listed as "50-50" sole members of the LLC, their membership/financial interests in the LLC remain community property. They might be the "member" listed but that's a bookkeeping thing for the LLC, not a statement of beneficial interest or property characterization. If the married couples currently have 50-50 ownership, the transfer to the LLC does not change that. Technically the non-listed spouse nevertheless retains full rights to act and vote that membership interest, because the membership interest is community property.

So, you should be able to claim exemption as "mere change in identity or form" WAC 458-61A-211(2)(a). You might also consider WAC 458-61A-212(2)(c) or -212(2)(e), depending on what the clients' accountant might advise.

As a practical matter, the listing of members in the LLC will not be visible to the treasurer when the deed is sent to recording. The REETA form will show Grantors as A, B, C, D, and the Grantee will be the LLC. You could have one person sign as agent for all Grantors and sign as agent for Grantee (if so authorized). Or maybe have both A and C sign both as agents for Grantors and agents for Grantee. So I think it's unlikely to be challenged at the time of recording.

In case of audit by DOR, I would just make sure all the backup documentation is complete showing the property was owned 50-50 by the couples, and each couple's share was their community property; and be sure that the LLC Operating Agreement does not have squirrelly language purporting to change characterization or otherwise try to exclude the spouse of the listed member from asserting their right to manage and control community property.

Sincerely,

Eric

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

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Inge Fordham
Sent: Wednesday, January 29, 2025 12:51 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] Transfer of Property owned by 2 married couples as TIC to an LLC

Colleagues,

I was contacted by a real estate investor looking to transfer property owned by two sets of spouses (A and B, a married couple, and C and D, a married couple, as tenants in common) to an LLC where A and C are the sole members.  Although the LLC is considered a community asset, I don't believe that's enough to satisfy the DOR when it comes to claiming an excise tax exemption.  The options I see are: (1) add B and D to the LLC so A, B, D, and D all have a 25% interest (which may have unintended consequences); (2) B can transfer her interest in the property to A, and D to C, to create separate property (which may also have unintended consequences); or (3) pay excise tax on the 50% transfer.

I'm wondering if there are other options I have not considered.  How do you counsel clients in this circumstance?

Thank you,

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Inge A. Fordham | Attorney
Fordham Law, PLLC
3218 Sixth Avenue | Tacoma, WA 98406
Office: (253) 348-2657 | Mobile: (206) 778-3131
www.fordhamlegal.com<http://www.fordhamlegal.com>

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