BILL REQ. #:  S-3602.1 

Read first time 01/19/2004.   Referred to Committee on Ways & Means.

     AN ACT Relating to the Washington estate tax marital deduction; amending RCW 11.108.010, 83.110.090, and 11.02.005; adding a new section to chapter 11.108 RCW; creating new sections; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that significant changes have been made in the federal estate tax laws and that an unintended consequence of these federal estate tax law changes has been to create difficulties and confusion in the administration and enforcement of the Washington estate tax. The legislature further finds that since 1981 one goal of the Washington estate tax has been, for married taxpayers, to allow postponement of the Washington estate tax until the surviving spouse dies, to avoid economic hardship in families and communities throughout the state. The legislature further finds that many Washington taxpayers are still unaware of these federal estate tax law changes, have not updated their estate planning documents to permit postponement of the Washington estate tax, and, despite the efforts of the department of revenue, in good faith, have failed to comply with Washington estate tax reporting and payment requirements. The legislature therefore declares that this act is needed to ensure a fair and balanced estate tax system, a reasonable opportunity for a surviving spouse to postpone the Washington estate tax until the surviving spouse dies, and the level of taxpayer compliance which Washingtonians expect. This act shall be construed and applied liberally as required to realize the decedents' reasonable expectations.

NEW SECTION.  Sec. 2   (1) The legislature specifically approves excise tax advisory no. 2013-57-015 issued May 19, 2003, by the department of revenue, conferring on an executor the authority to make a marital deduction election for purposes of the Washington estate tax similar to the qualified terminable interest property election under Internal Revenue Code section 2056(b)(7) of the Internal Revenue Code.
     (2) The legislature intends that chapter 11.108 RCW apply to a trust for which a Washington election similar to the qualified terminable interest property election under Internal Revenue Code section 2056(b)(7) of the Internal Revenue Code is made.

Sec. 3   RCW 11.108.010 and 1997 c 252 s 81 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) The term "pecuniary bequest" means a gift in a governing instrument which either is expressly stated as a fixed dollar amount or is a gift of a dollar amount determinable by the governing instrument, and a gift expressed in terms of a "sum" or an "amount," unless the context dictates otherwise, is a gift of a dollar amount.
     (2) As the context might require, the term "marital deduction" means either the federal estate tax deduction or the federal gift tax deduction allowed for transfers to spouses under the Internal Revenue Code.
     (3) The term "maximum marital deduction" means the maximum amount qualifying for the marital deduction.
     (4) The term "marital deduction gift" means a gift intended to qualify for the marital deduction as indicated by a preponderance of the evidence including the governing instrument and extrinsic evidence whether or not the governing instrument is found to be ambiguous. However, an intent to qualify for the marital deduction will be presumed for any gift for which a Washington QTIP election could be made. For purposes of this subsection, a "Washington QTIP election" is an election by a personal representative (or if no personal representative is acting, any person in actual or constructive possession of the gift property) similar to the qualified terminable interest property (QTIP) election under section 2056(b)(7) of the Internal Revenue Code which qualifies the gift property for the marital deduction under the Washington estate tax, chapter 83.100 RCW, but for which a federal QTIP election is not made.
     (5) The term "governing instrument" includes, but is not limited to: Will and codicils; revocable trusts and amendments or addenda to revocable trusts; irrevocable trusts; beneficiary designations under life insurance policies, annuities, employee benefit plans, and individual retirement accounts; payable-on-death, trust, or joint with right of survivorship bank or brokerage accounts; transfer on death designations or transfer on death or pay on death securities; and documents exercising powers of appointment.
     (6) The term "fiduciary" means trustee or personal representative. Reference to a fiduciary in the singular includes the plural where the context requires.
     (7) The term "gift" refers to all legacies, devises, and bequests made in a governing instrument.
     (8) The term "transferor" means the testator, grantor, or other person making a gift.
     (9) The term "spouse" includes the transferor's surviving spouse in the case of a deceased transferor.

NEW SECTION.  Sec. 4   A new section is added to chapter 11.108 RCW to read as follows:
     (1) This section applies to any trust that is established as a result of the transferor's death and that receives an amount or fractional share of the transferor's gross estate determined by direct or indirect reference to the federal applicable exclusion amount available to the transferor at the time of the transferor's death or by a formula gift intended to result in no federal estate tax being paid on property passing to the trust. If:
     (a) A transferor dies after December 31, 2001;
     (b) The transferor is survived by a spouse;
     (c) Under the terms of a governing instrument the transferor makes a transfer of property in trust for the benefit of the spouse which is includible in the transferor's gross estate for purposes of the Washington estate tax, chapter 83.100 RCW, and which bears Washington estate tax because it exceeds the Washington applicable exclusion amount but bears no federal estate tax because it is less than or equal to the federal applicable exclusion amount; and
     (d) The transferor makes the transfer in a manner that does not qualify for the Washington estate tax marital deduction because the spouse is not entitled to all income from the trust property or another person has the power to appoint any part of the property to a person other than the spouse,
then the transfer shall, unless subsection (2) or (3) of this section applies, be presumed to establish a trust which pays all net income to the spouse for life and authorizes distribution of principal of the trust in accordance with the terms of the trust, but to no person other than the spouse, and which qualifies for the Washington estate tax marital deduction and Washington qualified terminable interest property election, and the governing instrument shall be so construed. For purposes of this subsection, the "Washington applicable exclusion amount" means the applicable exclusion amount under section 2010 of the United States Internal Revenue Code of 1986 as of January 1, 2001, and the "federal applicable exclusion amount" means the applicable exclusion amount under section 2010 of the United States Internal Revenue Code of 1986 as of the date of the transferor's death.
     (2) Subsection (1) of this section does not apply if:
     (a) A beneficiary of the trust rebuts the presumption by a preponderance of the evidence including the governing instrument and extrinsic evidence whether or not the governing instrument is found to be ambiguous; or
     (b) The transferor amended the governing instrument making the transfer in trust after December 31, 2001, and expressed an intent not to qualify the transfer for the Washington estate tax marital deduction.
     If the beneficiary of the trust executes an agreement under RCW 11.96A.220 acknowledging the presumption of such construction, the beneficiary is deemed not to have rebutted the presumption.
     (3) Subsection (1) of this section does not apply if the governing instrument contains language expressly stating that federal or Washington law as of a particular time prior to January 1, 2002, is to govern the construction or interpretation of the transfer, the transfer shall be construed, and qualification for the Washington estate tax marital deduction shall be determined, under federal or Washington law in force and effect as of that time.

Sec. 5   RCW 83.110.090 and 2000 c 129 s 6 are each amended to read as follows:
     If the liabilities of persons interested in the estate as prescribed by this chapter differ from those which result under the federal estate tax law, for example, section 2206, 2207, 2207A, or 2207B of the Internal Revenue Code, the liabilities imposed by the federal law will control and the balance of this chapter shall apply as if the resulting liabilities had been prescribed in this chapter. If on the death of a surviving spouse the estate tax under chapter 83.100 RCW is payable on account of a trust for which the Washington qualified terminable interest property election was made, the tax shall be apportioned in the same manner as the federal estate tax is apportioned under section 2207A of the Internal Revenue Code. Nothing in this chapter affects the right of a personal representative to recover payments due an estate pursuant to the provisions of the Internal Revenue Code.

Sec. 6   RCW 11.02.005 and 2001 c 320 s 1 are each amended to read as follows:
     When used in this title, unless otherwise required from the context:
     (1) "Personal representative" includes executor, administrator, special administrator, and guardian or limited guardian and special representative.
     (2) "Net estate" refers to the real and personal property of a decedent exclusive of homestead rights, exempt property, the family allowance and enforceable claims against, and debts of, the deceased or the estate.
     (3) "Representation" refers to a method of determining distribution in which the takers are in unequal degrees of kinship with respect to the intestate, and is accomplished as follows: After first determining who, of those entitled to share in the estate, are in the nearest degree of kinship, the estate is divided into equal shares, the number of shares being the sum of the number of persons who survive the intestate who are in the nearest degree of kinship and the number of persons in the same degree of kinship who died before the intestate but who left issue surviving the intestate; each share of a deceased person in the nearest degree shall be divided among those of the deceased person's issue who survive the intestate and have no ancestor then living who is in the line of relationship between them and the intestate, those more remote in degree taking together the share which their ancestor would have taken had he or she survived the intestate. Posthumous children are considered as living at the death of their parent.
     (4) "Issue" includes all the lawful lineal descendants of the ancestor and all lawfully adopted children.
     (5) "Degree of kinship" means the degree of kinship as computed according to the rules of the civil law; that is, by counting upward from the intestate to the nearest common ancestor and then downward to the relative, the degree of kinship being the sum of these two counts.
     (6) "Heirs" denotes those persons, including the surviving spouse, who are entitled under the statutes of intestate succession to the real and personal property of a decedent on the decedent's death intestate.
     (7) "Real estate" includes, except as otherwise specifically provided herein, all lands, tenements, and hereditaments, and all rights thereto, and all interest therein possessed and claimed in fee simple, or for the life of a third person.
     (8) "Will" means an instrument validly executed as required by RCW 11.12.020.
     (9) "Codicil" means a will that modifies or partially revokes an existing earlier will. A codicil need not refer to or be attached to the earlier will.
     (10) "Guardian" or "limited guardian" means a personal representative of the person or estate of an incompetent or disabled person as defined in RCW 11.88.010 and the term may be used in lieu of "personal representative" wherever required by context.
     (11) "Administrator" means a personal representative of the estate of a decedent and the term may be used in lieu of "personal representative" wherever required by context.
     (12) "Executor" means a personal representative of the estate of a decedent appointed by will and the term may be used in lieu of "personal representative" wherever required by context.
     (13) "Special administrator" means a personal representative of the estate of a decedent appointed for limited purposes and the term may be used in lieu of "personal representative" wherever required by context.
     (14) "Trustee" means an original, added, or successor trustee and includes the state, or any agency thereof, when it is acting as the trustee of a trust to which chapter 11.98 RCW applies.
     (15) "Nonprobate asset" means those rights and interests of a person having beneficial ownership of an asset that pass on the person's death under a written instrument or arrangement other than the person's will. "Nonprobate asset" includes, but is not limited to, a right or interest passing under a joint tenancy with right of survivorship, joint bank account with right of survivorship, payable on death or trust bank account, transfer on death security or security account, deed or conveyance if possession has been postponed until the death of the person, trust of which the person is grantor and that becomes effective or irrevocable only upon the person's death, community property agreement, individual retirement account or bond, or note or other contract the payment or performance of which is affected by the death of the person. "Nonprobate asset" does not include: A payable-on-death provision of a life insurance policy, annuity, or other similar contract, or of an employee benefit plan; a right or interest passing by descent and distribution under chapter 11.04 RCW; a right or interest if, before death, the person has irrevocably transferred the right or interest, the person has waived the power to transfer it or, in the case of contractual arrangement, the person has waived the unilateral right to rescind or modify the arrangement; or a right or interest held by the person solely in a fiduciary capacity. For the definition of "nonprobate asset" relating to revocation of a provision for a former spouse upon dissolution of marriage or declaration of invalidity of marriage, RCW 11.07.010(5) applies. For the definition of "nonprobate asset" relating to revocation of a provision for a former spouse upon dissolution of marriage or declaration of invalidity of marriage, see RCW 11.07.010(5). For the definition of "nonprobate asset" relating to testamentary disposition of nonprobate assets, see RCW 11.11.010(7).
     (16) "Internal Revenue Code" means the United States Internal Revenue Code of 1986, as amended or renumbered as of January 1, ((2001)) 2004.
     (17) References to "section 2033A" of the Internal Revenue Code in wills, trust agreements, powers of appointment, beneficiary designations, and other instruments governed by or subject to this title shall be deemed to refer to the comparable or corresponding provisions of section 2057 of the Internal Revenue Code, as added by section 6006(b) of the Internal Revenue Service Restructuring Act of 1998 (H.R. 2676, P.L. 105-206); and references to the section 2033A "exclusion" shall be deemed to mean the section 2057 deduction.
     Words that import the singular number may also be applied to the plural of persons and things.
     Words importing the masculine gender only may be extended to females also.

NEW SECTION.  Sec. 7   This act applies to (1) all Washington estate tax returns not filed before the effective date of this act, and (2) regarding section 4 of this act, tax payable on account of decedents dying on or after the effective date of this act.

NEW SECTION.  Sec. 8   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 9   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.