FINAL BILL REPORT

                  SSB 5197

                           C 43 L 99

                      Synopsis as Enacted

Brief Description:  Making technical corrections to the disclaimer statute.

Sponsors:  Senate Committee on Judiciary (originally sponsored by Senators Johnson and Kline).

Senate Committee on Judiciary

House Committee on Judiciary

Background:  As used in the disclaimer statute, a disclaimer is the refusal by a beneficiary to accept an inheritance.  The inheritance then passes, normally, to the children of the beneficiary.  Transfer of an inheritance using this disclaimer is not treated as a taxable gift either to the beneficiary or to the children who receive the inheritance.  There are generally two situations in which beneficiaries disclaim an inheritance:  1) if they have a sufficient estate and the inheritance would result in their paying large estate taxes; or, 2) if they are insolvent with many judgments against them and they do not want the inheritance monies to go to creditors.

The purpose of the disclaimer law is to insure that a disclaimer that is intended to provide no federal gift tax consequences will satisfy the requirements of the Internal Revenue Code.  Currently, specific subsections of state law must be specifically referred to in the language of the disclaimer in order to avoid tax consequences.

Because of the extremely technical wording of the Internal Revenue Code regarding disclaimers, the Estate and Gift Tax Section of the Washington State Bar has concerns that attorneys in general practice may draft disclaimer language for their clients that inadvertently results in substantial estate taxes to the clients and in subsequent malpractice lawsuits directed against those attorneys.

Summary:  A disclaimer of interest in an estate does not have to specifically refer to specific subsections of state law in order to avoid tax consequences.  Unless otherwise designated within the disclaimer, a disclaimer meets the minimum requirements of the Internal Revenue Code.  Disclaimed property does not have to pass into a trust in order for the disclaimer to apply.  The word Aexecutor@ is changed to the more inclusive fiduciary term Apersonal representative.@

The act applies retroactively to all disclaimers made after the date of the change in the Internal Revenue Code.

Votes on Final Passage:

Senate 47 0

House     90 0

Effective:  July 25, 1999