TAXATION - REAL ESTATE EXCISE TAX - TRANSFER OF REAL PROPERTY FROM OWNER TO HIMSELF AS TRUSTEE FOR HIS OWN BENEFIT

TAXATION - REAL ESTATE EXCISE TAX - TRANSFER OF REAL PROPERTY FROM OWNER TO HIMSELF AS TRUSTEE FOR HIS OWN BENEFIT.

The real estate excise tax provided for by chapter 28.45 RCW does not apply to a conveyance of real property from the owner thereof to himself as trustee for his own benefit, with the right to revoke the trust at any time prior to death being reserved, and with his children being designated as alternative beneficiaries in the event that the trust is not thus revoked prior to death.

                                                              - - - - - - - - - - - - -

                                                                 January 21, 1969

Honorable R. DeWitt Jones
Prosecuting Attorney
Clark County
301 Court House
Vancouver, Washington 98660

                                                                                                                   Cite as:  AGO 1969 No. 3

Dear Sir:

            By letter previously acknowledged, you have requested an opinion of this office on a question pertaining to the applicability of the one percent real estate excise tax to the following described transaction:

            A conveyance of real property from the owner thereof to himself as trustee for his own benefit, with the right to revoke the trust at any time prior to death being reserved, and with his children being designated as alternative beneficiaries in the event that the trust is not thus revoked prior to death.

            In our opinion, the real estate excise tax is not applicable to this transaction.

                                                                     ANALYSIS

            The imposition of the real estate excise tax, which is provided for in chapter 28.45 RCW, is conditioned upon two essentials:

            (1) The transfer of any estate or interest in land, including standing timber, and

             [[Orig. Op. Page 2]]

            (2) A "sale" which is defined by RCW 28.45.010 to include,

            ". . . any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration, . . ."  (Emphasis supplied.)

            There is, of course, a transfer of an "estate or interest" in land involved in the transaction described in your question.  Even though both parties to the transaction are the same person, there is, as in the case of any conveyance of real property in trust, a transfer from the settlor to the trustee of legal title to the property.  See, 54 Am.Jur., Trusts, § 96 (89), and authorities cited therein.  Thus the answer to your question is to be determined by whether a valuable consideration exists.

            In AGO 61-62 No. 86, copy enclosed, we concluded that a valuable consideration, required by the statutory definition of "selling price" set forth in RCW 28.45.030, is that consideration which can be given a monetary value.  That opinion was concerned with the application of the tax in question to the two transfers necessary to create a joint tenancy in real estate.  We determined that, with respect to the transfer to the strawman-grantee, his promise to reconvey was not valuable consideration.  He received only bare legal title, divorced from equitable ownership, which was not anything of measurable value.

            Again, a trust in real estate implies the holding of the legal title (apparent right of ownership and possession) for the benefit of one who has the equitable title (the beneficial interest or real ownership).  State ex rel. Wirt v. Superior Court, 10 Wn.2d 362, 116 P.2d 752 (1941).

            We deem it immaterial whether, in establishing a trust in real property, the settlors have given up all rights in the property by naming another as beneficiary, or whether (as here) they are also the beneficiaries.  If the former, the transfer to the trustee is without valuable consideration and a gift to the beneficiary.  If the latter, there is also no valuable consideration.  As was said inCarpenter v. White, 80 F.2d 145 (1935), a case involving the application of the former federal conveyance stamp tax (an analogous tax) to a  [[Orig. Op. Page 3]] transfer in trust:

            ". . . We recognize fully that mere rearrangement of the title to property for greater convenience in the management of it, without any real change of ownership, is not a taxable conveyance. . . ."

            We also consider it immaterial whether the settlors have or have not reserved the right to revoke the trust.  The reservation or nonreservation of such a right does not alter the fact that there was no valuable consideration in the transfer to the trustee.

            InChristensen v. Skagit County, 66 Wn.2d 95, 401 P.2d 335 (1965), the court held that a transfer by partners to a corporation, which they formed in exchange for capital stock, was taxable.  However, there, the partners had given up their rights in the real property in exchange for the valuable right, evidenced by the stock, of participating in the management and ownership of the corporation.  By way of contrast, no comparable rights are exchanged in the transaction we are here considering.

            Therefore, it is our opinion that the real estate excise tax does not apply to this transaction, for the reason that it does not constitute a "sale" as defined in RCW 28.45.010, supra.  In thus concluding, we are aware of AGO 55-57 No. 328, in which this office found, without delineating it, a valuable consideration in the transfer of real estate to a trustee even though the trustee apparently gave nothing in return except a promise to sell the property and apply the proceeds to the benefit of the settlor or her heirs.  We have reviewed that opinion in the light of a careful analysis of the applicable statutes, and have determined that the conclusion there reached was incorrect.  Therefore, in so far as AGO 55-57 No. 328 is inconsistent with the conclusions reached herein, it is overruled.

            It is hoped that the foregoing will be of assistance to you.

Very truly yours,

SLADE GORTON
Attorney General

HENRY W. WAGER
Assistant Attorney General