HOUSE BILL REPORT

                 SSB 5100

             As Reported By House Committee On:

                        Law & Justice

Title:  An act relating to professional service corporations.

Brief Description:  Allowing qualified trusts to hold shares in professional service corporations.

Sponsors:  Senate Committee on Law & Justice (originally sponsored by Senators Oke and Strannigan).

Brief History:

Committee Activity:

Law & Justice:  3/21/97 [DP].

HOUSE COMMITTEE ON LAW & JUSTICE

Majority Report:  Do pass.  Signed by 13 members:  Representatives Sheahan, Chairman; McDonald, Vice Chairman; Sterk, Vice Chairman; Costa, Ranking Minority Member; Constantine, Assistant Ranking Minority Member; Carrell; Cody; Kenney; Lambert; Lantz; Radcliff; Sherstad and Skinner.

Staff:  Trudes Hutcheson (786-7384).

Background:  Professional service corporations offer the public those services that require a person rendering the service to obtain a license or other legal authorization.  Examples include certified public accountants, architects, and physicians.

Only individuals licensed to practice the profession are eligible to be shareholders of a professional service corporation engaged in that practice.  No shareholder may sell or transfer his or her shares in the professional service corporation except to another individual who is eligible to be a shareholder of the corporation.  If shares are transferred to an ineligible person, the corporation or remaining eligible shareholders may redeem those shares for payment.

In general, a charitable remainder trust (CRT) allows a person to transfer assets to a CRT and receive income from the trust for a term of years, or for life.  The remaining assets are then given to the designated charity.  Income from the CRT is taxable to the extent it is distributed to the beneficiary.  The trustee of a CRT may sell the assets without federal income tax on the gain.  A charitable remainder trust can be either an annuity trust, a trust which pays the income beneficiary an annual fixed dollar amount equal to a percentage of the initial value of the assets, or a unitrust, a trust which pays a fixed percentage of the fair market value of the trust=s assets as determined annually.  A person may transfer his or her shares of a corporation, other than a professional service corporation, into a CRT.

Summary of Bill:  A shareholder of a professional service corporation may transfer his or her shares into a CRT.  A CRT is eligible to own shares if  (a) the beneficiaries of the CRT are all eligible persons or spouses of eligible persons; (b) the trustee is an eligible person and has exclusive authority over the shares of the professional service corporation while the shares are held in the trust; and (c) the designated charity meets certain qualifications, such as being domiciled in Washington or maintaining a local chapter in Washington.

Appropriation:  None.

Fiscal Note:  Not requested.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  This bill allows shareholders to benefit from the tax advantages in establishing charitable remainder trusts while benefiting charities as well.

Testimony Against:  None.

Testified:  Senator Oke, prime sponsor.