HOUSE BILL REPORT

SSB 6390

BYSenate Committee on Law & Justice (originally sponsored by Senators Nelson, Talmadge and Newhouse)

Modifying marital deduction provisions regarding qualified domestic trusts.

House Committe on Judiciary

Majority Report:  Do pass.  (17)

      Signed by Representatives Appelwick, Chair; Crane, Vice Chair; Padden, Ranking Republican Member; Belcher, Brough, Dellwo, Forner, Hargrove, Inslee, P. King, Moyer, H. Myers, Schmidt, Scott, D. Sommers, Tate and Wineberry.

House Staff:Kristen Lichtenberg (786-7623)

                  Regina Jones (786-7191)

AS PASSED HOUSE MARCH 2, 1990

BACKGROUND:

1988 changes in federal tax laws abolished the estate tax marital deduction for gifts given to surviving spouses who are not U.S. citizens, unless the property given is transferred to a "qualified domestic trust."  To be a qualified domestic trust under new federal law, at least one of the trustees must be a U.S. citizen or corporation, the approval of the U.S. trustee is required on all distributions from the trust, the surviving spouse is entitled to all income from the trust, and the trust is subject to any rules promulgated by the Secretary of the Treasury.  If the surviving spouse becomes a U.S. citizen, however, the trust need not comply with the requirements of a qualified domestic trust.

SUMMARY:

Washington superior courts have the power to reform a non-qualifying trust for a surviving spouse who is not a U.S. citizen.  A fiduciary of an estate has the power to elect to qualify property for the federal marital deduction.  If the fiduciary elects to so qualify the property, but fails to reform a non-qualified trust, the trust is "saved" by a requirement that its provisions be interpreted in accordance with the Internal Revenue Code.  The requirements of a qualified domestic trust conform to the federal law's new definition.  An emergency clause mandates that the act take effect immediately.

Fiscal Note:      Not Requested.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:    Mike Carrico, Chairperson of the Washington State Bar Association, Estate and Gift Tax Committee.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    Many estate planners are unaware that federal law abolishes the marital estate tax deduction for non-citizen spouses, when the funds are not transferred to a qualified domestic trust.  The bill's saving and reforming provisions for non-qualified trusts will protect surviving spouses.

House Committee - Testimony Against:      None.