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February 1, 2022 By stowelawpllc

WASHINGTON TRANSFER ON DEATH DEED AVOIDS PROBATE

The Transfer on Death Deed (“TODD”) is a non-probate alternative to transfer Washington real estate. It works equally as well for any Washington State property owner, whether a U.S. Citizen, U.S. Tax Resident, or Canadian Non-U.S. Resident.

In 2014, Washington State authorized a new way to convey real estate outside of probate. The TODD allows a property owner upon death to transfer his or her interest in real estate to the designated beneficiary. In order to become effective, however, the TODD must be recorded during the life of the property owner at the County Auditor’s Office in the country where the property is located.

PROS

1. A property owner may name more than one person as a beneficiary. A property owner may even name a contingent beneficiary or class of beneficiaries who receive the real estate if the original beneficiary dies. This alternative may make sense if the property owner believes all the beneficiaries will share equally in the management, care and expense as future owners of the real estate.

2. Non-Taxable with the IRS until Death (and upon death only if subject to U.S. Estate Tax).

3. Exempt from Washington State Real Estate Excise Tax.

4. The property owner retains full control and power over the real estate until death. Therefore, the property owner may sell, lease, or otherwise use the real estate. The beneficiaries have no right in the real estate until the owner’s death.

5. Fully Revocable if the property owner changes his or her mind upon recording a revocation at the County Auditor’s office.

6. Merely record the Death Certificate to effectuate the transfer subject to estate tax compliance, if any.

7. The beneficiary gets a full-stepped up basis for U.S. tax purposes, meaning that he or she assumes the fair market value of the real estate at the date of death for future taxable events. Often a full-stepped up basis is higher in value than the original cost basis in the property. A higher value should help reduce the amount of the capital gain in the event of a future sale.

CONS

1. As the TODD must be recorded at the County Auditor’s Office in order to become effective it also becomes “public knowledge”. Therefore, it is possible for a “clever” heir to discover the TODD if he or she searches the County records where the real estate is located. This situation may be awkward if the clever heir is not a designated beneficiary in the TODD.

2. The TODD may be subject to challenge by an aggrieved heir who may not be a beneficiary.

3. The real estate is subject to possible creditor claims.

4. Not recommended for minor beneficiaries.

The above list is not exhaustive. There are other pros and cons.

It is best to coordinate the TODD with the rest of your Estate Plan to avoid any conflict.

Further, other non-probate methods may also be considered, including a Trust, Joint Tenancy with Rights of Survivorship, and Tenancy in Common.  I recommend you read my blog article about the Community Property Agreement, because this non-probate method may be more advantageous.

With any of the above non-probate alternatives there may be U.S. Estate Tax reporting obligations. A U.S. Estate Tax Return may have to be filed. And it may be necessary to obtain a transfer clearance certificate from the IRS upon death prior to transferring the real estate.

The above is not intended to be legal advice but is general information provided as a courtesy.

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Filed Under: Non-Probate Methods, Real Estate

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Canadian Non-U.S. Residents Buying Real Estate in Washington State

  • Buying Real Estate in Washington is different from B.C.
  • Plan before and consider a B.C. Trust or other alternatives to hold title with your B.C. Lawyer, as well as other alternatives in Washington.
  • “Closing” or completion documents are usually prepared by an escrow agent (usually affiliated with a Title Insurance Company), and not by an attorney as in B.C.
  • South of the Border, Title Insurance Companies insure the ”title” and certain matters may or may not be covered. But recognize that it is possible for a property owner to lose property rights by adverse claims over time. So there is often risks in any real estate transaction.
  • In order to reduce the risks, it is recommended that a buyer obtain a survey before completing the purchase of Real Estate in Washington.

Canadian Non-U.S. Residents Selling or Gifting Real Estate in Washington State

  • A sale of U.S. real estate requires the buyer to withhold 15% of the amount realized by the foreign seller on most transactions unless exempted.
  • A sale of U.S. real estate may result in U.S. tax liability to the foreign seller although the tax rate may be reduced by capital gains treatment. Any tax paid in the U.S. may be a credit against taxes owed in Canada.
  • A gift of U.S. real estate is generally not favorable and may result in U.S. tax liability. Non-U.S. residents are generally limited to gifting $15,000 USD per year of U.S. based assets tax free.
ARE YOU EXEMPT?
  • Canadian Non-Residents with US based assets are exempt from US estate tax if the value of the assets is $60,000 USD or less. And in this case, no US Estate Tax Form 706-NA would be required. If the Canadian Non-Resident owned U.S. Real Estate it is recommended a Transfer Certificate be obtained from the IRS before any transfer from the decedent’s estate/ Above $60,000 USD a US estate tax return 706-NA is required to be filed within nine (9) months after the date of death. In order to determine if there would be any US estate tax due, a formula under the US-Canada Tax Treaty kicks in. See US- Canada Tax Treaty link below. Normally, there is no US estate tax if the value of your worldwide assets does not exceed the maximum amount, which is adjusted annually. In 2017, it is about $5.4 Million USD. But if your worldwide assets exceed the formula or the $5.4 Million USD (as adjusted annually) there may be US Estate Tax due (which can be around 40%). And the decedent’s estate should request a transfer certificate from the IRS before the estate transfers any property.
  • Link: U.S.-Canada Tax Treaty
  • Article XXIX B (Taxes Imposed by Reason of Death) of the U.S.-Canada Income Tax Treaty (“Treaty” ) provides special rules that may reduce taxes for U.S. citizen or resident decedents with Canadian property and Canadian residents with U.S. property. These rules were first incorporated into the Treaty under the 1995 Protocol to the Treaty.
  • If the decedent was a Canadian resident but not a U.S. citizen at the time of death, the estate can take a “pro rata” unified credit to compute U.S. estate tax. The pro rata credit under the Canadian treaty is determined by multiplying the exclusion amount available to a U.S. citizen decedent by a fraction of the value of the decedent’s U.S. assets over the value of the decedent’s world-wide assets. A statement invoking the right under the Treaty described above and showing the tax calculation must be attached to Form 706-NA. See paragraph 2 of Article XXIX B of the Treaty.
U.S. GREEN CARD HOLDERS
  • Watch abandoning your Green Card, including by failing to change your address and extended visits abroad for more than 180 days.
  • Watch the Expatriation Tax if you abandon your Green Card after satisfying the 8 of 15 year test.
  • Watch U.S. Estate Tax liability if you remain a Green Card holder indefinitely, and do not naturalize and become a U.S. Citizen. In 2017, a U.S. Citizen is entitled to a unified credit of $5,400,000 USD against U.S. Estate Tax.

Canadian Non-Residents Have Preferred Non-Probate Alternatives
to Transfer Real
Estate in Washington State

  • Washington State has innovative non-probate alternatives to transfer real estate upon death in comparison to B.C.
  • Options include Community Property Agreements between spouses, and Transfer on Death Deeds (“TODD”), which can be used between spouses, children, relatives, or other beneficiaries.
  • Another option includes an Affidavit of No (or Lack of) Probate in Washington, and in effect, transfer ownership to the surviving heirs.
  • And even if a Probate is necessary it is often not as burdensome and expensive as in B.C. While there is a court filing fee in Washington, there are no “probate fees” as in B.C.

Canadian Non-Residents Buying Real Estate in Washington State

  • Buying Real Estate in Washington is different than in B.C.
  • Plan before and consider a B.C. Trust or other alternatives to hold title with your B.C. Lawyer, or other alternatives in Washington.
  • “Closing” or final documents are usually prepared by escrow companies, and not completed by an attorney like in B.C.
  • South of the Border, title companies insure the ”title” and certain matters may or may not be excepted. But it is possible for a property owner to lose his property rights by adverse claims over time.
Canadian Non-Residents Selling

Canadian Non-Residents Selling or Gifting Real Estate
in Washington
State

  • A sale of property may trigger U.S. tax liability but the tax rate may be reduced by capital gains treatment. There is often a withholding on most transactions.
  • Gifting U.S. real estate is generally not favorable and may result in U.S. tax liability.
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The articles and information contained on in this website were prepared by Stowe Law PLLC. They are a general statement of the law of the State of Washington. The laws of other states differ from Washington law, and these articles are not intended to describe the law of any state except Washington. The articles and information found on this web site are intended for general informational purposes. They are not legal advice for a reader in any particular legal situation. The only way to obtain legal advice on a particular situation is to consult a licensed attorney. The reader’s use of this website and the information contained herein does not create an attorney-client relationship of any kind with Stowe Law PLLC.

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The BC & Whatcom County Connection

  • Mark understands B.C. and Canadian Culture.
  • Mark, a resident of Point Roberts, WA, has been surrounded by Canadians visiting
    their cottages for many years.
  • Mark’s daughter, born in B.C., plays sports in B.C.
  • Mark enjoys hiking on the Northshore.
  • Mark relishes the views of Mount Baker and the Salish Sea.
  • Mark enjoys walking the family dog, Enzo, in the woods at Point Roberts.
  • Mark is still trying to “successfully” ride his mountain bike down Galbraith Mountain.
  • EDUCATION
  • University of Washington, Seattle, WA                                          1983
  • Bachelor of Arts in Philosophy–Cum Laude, Honorary Distinction, Phi Beta Kappa
  • Phi Delta Theta Fraternity
  • Gonzaga University, Spokane, WA 1986
  • Juris Doctorate
  • AFFILIATIONS
  • Washington State Bar Association, Member.                    1987-present.
  • US District Court, Western District of Washington, Seattle, WA. 1987-present.
  • Certified Player Agent by the National Hockey League Players Association (“NHLPA”). 1996-present.
  • US Tax Court, Washington D.C. 2009-present.
  • Practitioner of Foreign Law, The Law Society of British Columbia 2017-present.
  • INTERESTS  
  • Enjoys Family, Hockey, Baseball, Mountain Biking, Hiking, and Travel.