I was under the impression that one of the ways to “hide” the transfer of a property when buying “subject to”, is to put the property in a revocable living trust and record this with the seller holding the beneficial interest. The seller then “quietly” assigns the beneficial interest to the buyer. This assignment of beneficial interest is not recorded.
I was told that this makes it appear that the seller is placing the property in a trust for estate planning and not necessarily selling the property and transferring ownership.
When buying property “subject to” in WA state, when do I pay the excise tax?
I will first record a Deed to Trustee with seller holding the beneficial interest and then have the seller sign a document assigning the beneficial interest to my LLC (not recorded)
The recorded Deed to Trustee shows the seller holding the beneficial interest. Is this a “mechanism” to pay the excise tax?
Here is my understanding: Technically, when more than 50% of
the beneficial interest is transferred, the excise becomes due
upon the transfer. However, since this transfer happens as a
private matter, there is no public record to show the transfer. No
one knows to come after you and seek payment, it’s up to you to
take care of it. If memory serves me, you have 30 days after the
transfer to pay before any penalties start.
When you sell the property and transfer interest from the trust to
new buyer, there will again be excise due, and of course this will
be handled in escrow if there is a traditional escrow.
If you were to sell just the beneficial interest, the tax would legally
be due, but again, no one would know.
Historical note: Used to be that using a trust avoided the excise,
but the legislature plugged that loophole a few years back, along
with a few others related to excise tax exemptions.
You can find the excise tax law in the RCW, on the WA State gov
website, sorry, don’t have that link handy.
Hope this helps, but check with your RE attorney for verification
and updates to the code.