HOUSE BILL REPORT

SHB 1168

BYHouse Committee on Judiciary (originally sponsored by Representatives Appelwick, Padden, Crane, Tate and P. King) 

Revising the uniform estate tax apportionment act.

House Committe on Judiciary

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (17)

      Signed by Representatives Appelwick, Chair; Crane, Vice Chair; Padden, Ranking Republican Member; Belcher, Dellwo, Hargrove, Inslee, P. King, Locke, R. Meyers, Moyer, H. Myers, Patrick, Schmidt, Scott, Tate and Van Luven.

House Staff:Bill Perry (786-7123)

AS PASSED HOUSE FEBRUARY 1, 1989

BACKGROUND:

A 1986 amendment to the federal tax code imposes a 15 percent excise tax on the estate of a person who dies with an "excess retirement accumulation."  An excess retirement accumulation is that part of a qualified employee retirement plan that exceeds a certain amount.  By federal rule that amount is the present value of a hypothetical annuity yielding the greater of $112,500 annually for a certain term, or $150,000 annually over the decedent's life based on his or her actuarially determined life expectancy immediately prior to death.  Community property laws are ignored in figuring the amount of the excess retirement accumulation tax liability, but a surviving spouse who is the primary beneficiary of the qualified retirement plan may defer the tax.

Although Washington does not have an estate tax, it has adopted the uniform estate tax apportionment act.  This act provides that unless the will creating the estate directs otherwise, federal estate taxes imposed on a Washington estate are to be apportioned in proportion to the value of the interest of each person who receives something from the estate.  For purposes of this apportionment, the "value" of an interest is determined according to the same valuation rules that are used to determine the tax.

The federal tax code allows the administrator of an estate to choose to value farm property and certain other real estate at its current use rather than at its highest and best use. In certain circumstances, the administrator may also choose to pay estate taxes in installments.  The Washington statute has no apportionment provisions to cover these options.

SUMMARY:

Several changes are made in the state's uniform estate tax apportionment act.

The 15 percent excess retirement accumulation tax is included in the act for purposes of apportionment.  Special rules, separate from those applying to estate tax apportionment, are prescribed for the apportionment of the excess accumulation tax.  Only persons who are eligible to receive part of the proceeds of the retirement plan at the time the excess accumulation tax is due are subject to apportionment for that tax.  Apportionment of the tax is on the basis of proportional interests in the retirement plan.

The administrator of an estate is given authority to make loans from the estate for payment of the excess accumulation tax.

The courts are given authority to apportion equitably the excess accumulation tax in cases in which there are successive interests in the retirement benefits.

Special rules are provided for apportioning estate taxes in cases in which optional property valuation methods are available under federal law.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Richard Klubucher, Washington State Bar Probate Section; Michael Carrico, Washington State Bar Probate Section.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    These changes allow more equitable apportionment of tax burdens and benefits.  The portion of an estate responsible for reducing the tax due on the entire estate is allowed a proportionately greater share of that reduction.

House Committee - Testimony Against:      None Presented.