SENATE BILL REPORT

SB 6390

BYSenators Nelson, Talmadge and Newhouse

Modifying marital deduction provisions regarding qualified domestic trusts.

Senate Committee on Law & Justice

Senate Hearing Date(s):January 16, 1990

Majority Report:  That Substitute Senate Bill No. 6390 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Nelson, Chairman; McCaslin, Vice Chairman; Hayner, Madsen, Newhouse, Niemi, Patrick, Rasmussen, Rinehart, Talmadge, Thorsness.

Senate Staff:Vicki E. Schur (786-7415)

                  February 5, 1990

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, JANUARY 16, 1990

BACKGROUND:

In 1988, Congress abolished the estate tax marital deduction for gifts to surviving spouses who are not U.S. citizens, unless the property given is placed in a qualified domestic trust.  To qualify as such a trust, its terms must require that each trustee be a U.S. citizen or domestic corporation, the surviving spouse is entitled to all income of the trust, payable at least annually, and the trust must meet any other requirements prescribed by the Secretary of the Treasury.

SUMMARY:

A fiduciary of an estate may elect to qualify property for the federal estate marital deduction.  As a saving provision for nonqualifying trusts, the provisions of the trust shall be construed in accordance with the requirements of the Internal Revenue Code.  At least one trustee must be a U.S. citizen or domestic corporation and must approve all distributions.  The trust must meet all other requirements prescribed by the Secretary of the Treasury.  If the surviving spouse becomes a U.S. citizen thereafter, such provisions will no longer apply.  A Washington superior court may reform a will or trust as necessary to qualify the trust for the marital deduction.

EFFECT OF PROPOSED SUBSTITUTE:

An emergency clause will allow a court to reform any nonqualifying trusts immediately if necessary.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: Michael Carrico, Washington State Bar Association Estate and Gift Tax Committee