Cheapening the estate tax
Published 8:30 pm Wednesday, May 29, 2013
On Wednesday, legislators in Olympia scrambled to fix a revenue head scratcher. The problem centers on a mechanism, the Qualified Terminable Interest Property trust, which permits certain wealthy couples to sidestep the state estate tax (keep awake, dear reader, it’s a sizzling tale.)
Washington’s stand-alone estate tax took effect 8 years ago, but a 2012 state Supreme Court ruling, the so-called Bracken case, offered wiggle room for enterprising couples who use the QTIP (a perfect acronym.)
The technical glitch, if not fixed immediately, will tap money from the state’s education legacy trust account and refund it to heirs of estates greater than $2 million. Imagine Robin Hood in reverse enabled by off-guard politicos.
This was never the intent of lawmakers who drafted the law nor Washington voters who overwhelming support it.
Next week, the Washington Department of Revenue will begin processing refund claims that could drain state coffers by $160.3 million over the 2013-15 biennium and approximately $40 million annually after that. As DOR highlights in a statement, “As tax practitioners change their estate planning techniques, the Department believes that the Bracken decision will eventually result in most assets of married couples escaping estate taxation completely through QTIP trusts while assets of unmarried individuals will remain fully taxable.”
Mending the glitch is not punitive, and it’s not new revenue. The QTIP wiggle is also patently unfair, greasing tax attorneys and penalizing widows.
Time is running out. As DOR communications director Mike Gowrylow told The Herald, “Once the checks are sent, that’s it, the case is closed even if the legislature acts retroactively.”
The House Finance Committee, under the leadership of Rep. Reuven Carlyle, passed a fix Wednesday, and the bill, HB 2064, goes to the full house today. Snohomish County’s delegation is urged to vote in favor.
“This is foremost a simple choice,” Carlyle said. “Should wealthy residents be allowed to use an unintended technicality or should they contribute to Washington’s one million school kids?”
The Senate majority quickly seized on a time-sensitive dilemma to monkey an easing of the estate tax. SB 5939 addresses the court issue but also reduces future rates. It’s a backdoor way to make life easier for approximately 300 wealthy Washington residents. The QTIP magoozle is inconsistent with the will of Washington voters and the spirit of the law.
Washington needs to bolster K-12, higher-ed and a crumbling transportation system. A tax windfall for the well-to-do shouldn’t be on the agenda.
