Status Summary

Status: HB 2064 was heard and passed by the House Finance committee on May 29th, and passed by the House on May 30th.

Legislative Session

2013

Status

Died

Sponsor

Rep. Ormsby

Sponsored by Rep. Ormsby, HB 2064 seeks to reaffirm that the term "transfer" as used in the Washington estate and transfer tax is to be given its broadest possible meaning consistent with established United States Supreme Court precedents.  The bill amends the definition of "transfer” to specifically include property where the decedent economically benefited in the property, i.e., property in a qualified terminable interest property (QTIP) marital trust.   A commensurate change is made to the definition of the "Washington taxable estate" to specifically include an interest in QTIP, regardless of whether the decedent acquired the interest in the property prior to May 17, 2005.The changes in the bill apply prospectively as well as retroactively to decedents dying on or after May 17, 2005.

Additional information about the Bracken Decision:   Federal law allows an unlimited marital deduction for property passed outright to a surviving spouse. This property is referred to as qualified terminable interest property (QTIP). When the surviving spouse passes away, the QTIP is included in the federal taxable estate. Since the current Washington estate tax did not take effect until May 17, 2005, an issue arises as to whether the Washington estate tax applies to QTIP when the first spouse passed away prior to that date. On October 18, 2012, the state Supreme Court, in Estate of Bracken, specifically held that if the QTIP transfer was made before May 17, 2005, it is not subject to the Washington State estate tax when the surviving spouse passes away. The Court reasoned that Washington's estate tax is specifically triggered by the transfer of property of the deceased and with QTIP, the actual transfer occurs when the first spouse passes away, rather than upon the surviving spouse’s death. Under federal law, a fictional transfer of QTIP occurs when the second spouse dies based on the original QTIP election by the first spouse. However, since the current Washington estate tax did not exist until May 17, 2005, no state QTIP election could have been made prior to this time.

In HB 2064, the Legislature finds that in the Bracken decision, the court narrowly construed the term "transfer" as defined in the Washington estate tax code, which creates an inequity never intended by the Legislature because it would mean that unmarried individuals would not enjoy any similar opportunities to avoid or greatly reduce their potential Washington estate tax liability. In addition, it could create disparate treatment between QTIP property and other property transferred between spouses that are eligible for the marital deduction.