Estate tax/nonfamilial heir

AN ACT Relating to adding a nonfamilial heir to the estate tax 1
deduction; amending RCW 83.100.046; creating new sections; and 2
providing an effective date. 3
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:4
Sec. 1. RCW 83.100.046 and 2010 c 106 s 236 are each amended to 5
read as follows: 6
(1) For the purposes of determining the Washington taxable 7
estate, a deduction is allowed from the federal taxable estate for:8
(a) The value of qualified real property reduced by any amounts 9
allowable as a deduction in respect of the qualified real property 10
under 26 U.S.C. Sec. 2053 (a)(4) of the federal internal revenue code, 11
if the decedent was at the time of his or her death a citizen or 12
resident of the United States. 13
(b) The value of any tangible personal property used by the 14
decedent ((or)), a member of the decedent's family , or any qualified 15
nonfamilial heir for a qualified use on the date of the decedent's 16
death, reduced by any amounts allowable as a deduction in respect of 17
the tangible personal property under 26 U.S.C. Sec. 2053 (a)(4) of the 18
federal internal revenue code, if all of the requirements of 19
subsection (10)(((f))) (g)(i)(A) of this section are met and the 20
H-0641.2
HOUSE BILL 1728
State of Washington 69th Legislature 2025 Regular Session
By Representatives Orcutt, Morgan, Manjarrez, Mendoza, Dufault,
Jacobsen, Barnard, Thai, and Eslick
Read first time 01/30/25. Referred to Committee on Finance.
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decedent was at the time of his or her death a citizen or resident of 1
the United States. 2
(c) The value of real property that is not deductible under (a) 3
of this subsection solely by reason of subsection (10)(((f))) (g)4
(i)(B) of this section, reduced by any amounts allowable as a 5
deduction in respect of the real property under 26 U.S.C. Sec. 6
2053(a)(4) of the federal internal revenue code, if the requirements 7
of subsection (10)(((f))) (g)(i)(C) of this section are met with 8
respect to the property and the decedent was at the time of his or 9
her death a citizen or resident of the United States.10
(2) Property will be considered to have been acquired from or to 11
have passed from the decedent if: 12
(a) The property is so considered under 26 U.S.C. Sec. 1014 (b) of 13
the federal internal revenue code; 14
(b) The property is acquired by any person from the estate; or15
(c) The property is acquired by any person from a trust, to the 16
extent the property is includible in the gross estate of the 17
decedent. 18
(3) If the decedent and the decedent's surviving spouse at any 19
time held qualified real property as community property, the interest 20
of the surviving spouse in the property must be taken into account 21
under this section to the extent necessary to provide a result under 22
this section with respect to the property which is consistent with 23
the result which would have obtained under this section if the 24
property had not been community property. 25
(4) In the case of any qualified woodland, the value of trees 26
growing on the woodland may be deducted if otherwise qualified under 27
this section. 28
(5) If property is qualified real property with respect to a 29
decedent, hereinafter in this subsection referred to as the "first 30
decedent," and the property was acquired from or passed from the 31
first decedent to the surviving spouse of the first decedent, active 32
management of the farm by the surviving spouse must be treated as 33
material participation by the surviving spouse in the operation of 34
the farm. 35
(6) Property owned indirectly by the decedent may qualify for a 36
deduction under this section if owned through an interest in a 37
corporation, partnership, or trust as the terms corporation, 38
partnership, or trust are used in 26 U.S.C. Sec. 2032A (g) of the 39
federal internal revenue code. In order to qualify for a deduction 40
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under this subsection, the interest, in addition to meeting the other 1
tests for qualification under this section, must qualify under 26 2
U.S.C. Sec. 6166 (b)(1) of the federal internal revenue code as an 3
interest in a closely held business on the date of the decedent's 4
death and for sufficient other time, combined with periods of direct 5
ownership, to equal at least five years of the eight-year period 6
preceding the death. 7
(7)(a) If, on the date of the decedent's death, the requirements 8
of subsection (10)(((f))) (g)(i)(C)(II) of this section with respect 9
to the decedent for any property are not met, and the decedent (i) 10
was receiving old age benefits under Title II of the social security 11
act for a continuous period ending on such date, or (ii) was disabled 12
for a continuous period ending on this date, then subsection (10)13
(((f))) (g)(i)(C)(II) of this section must be applied with respect to 14
the property by substituting "the date on which the longer of such 15
continuous periods began" for "the date of the decedent's death" in 16
subsection (10)(((f))) (g)(i)(C) of this section. 17
(b) For the purposes of (a) of this subsection, an individual is 18
disabled if the individual has a mental or physical impairment which 19
renders that individual unable to materially participate in the 20
operation of the farm. 21
(8) Property may be deducted under this section whether or not 22
special valuation is elected under 26 U.S.C. Sec. 2032A of the 23
federal internal revenue code on the federal return. For the purposes 24
of determining the deduction under this section, the value of 25
property is its value as used to determine the value of the gross 26
estate. 27
(9)(a) In the case of any qualified replacement property, any 28
period during which there was ownership, qualified use, or material 29
participation with respect to the replaced property by the decedent 30
or any member of the decedent's family must be treated as a period 31
during which there was ownership, use, or material participation, as 32
the case may be, with respect to the qualified replacement property.33
(b) Subsection (9)(a) of this section does not apply to the 34
extent that the fair market value of the qualified replacement 35
property, as of the date of its acquisition, exceeds the fair market 36
value of the replaced property, as of the date of its disposition.37
(c) For the purposes of this subsection (9), the following 38
definitions apply: 39
(i)(A) "Qualified replacement property" means any real property:40
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(I) Which is acquired in an exchange which qualifies under 26 1
U.S.C. Sec. 1031 of the federal internal revenue code; or2
(II) The acquisition of which results in the nonrecognition of 3
gain under 26 U.S.C. Sec. 1033 of the federal internal revenue code.4
(B) The term "qualified replacement property" only includes 5
property which is used for the same qualified use as the replaced 6
property was being used before the exchange. 7
(ii) "Replaced property" means the property was:8
(A) Transferred in the exchange which qualifies under 26 U.S.C. 9
Sec. 1031 of the federal internal revenue code; or10
(B) Compulsorily or involuntarily converted within the meaning of 11
26 U.S.C. Sec. 1033 of the federal internal revenue code.12
(10) For the purposes of this section, the following definitions 13
apply: 14
(a) "Active management" means the making of the management 15
decisions of a farm, other than the daily operating decisions.16
(b) "Farm" includes stock, dairy, poultry, fruit, furbearing 17
animal, and truck farms; plantations; ranches; nurseries; ranges; 18
greenhouses or other similar structures used primarily for the 19
raising of agricultural or horticultural commodities; and orchards 20
and woodlands. 21
(c) "Farming purposes" means: 22
(i) Cultivating the soil or raising or harvesting any 23
agricultural or horticultural commodity, including the raising, 24
shearing, feeding, caring for, training, and management of animals on 25
a farm; 26
(ii) Handling, drying, packing, grading, or storing on a farm any 27
agricultural or horticultural commodity in its unmanufactured state, 28
but only if the owner, tenant, or operator of the farm regularly 29
produces more than one-half of the commodity so treated; and30
(iii)(A) The planting, cultivating, caring for, or cutting of 31
trees; or 32
(B) The preparation, other than milling, of trees for market.33
(d)(i) "Member of the family" means, with respect to any 34
individual, only: 35
(A) An ancestor of the individual; 36
(B) The spouse or state registered domestic partner of the 37
individual; 38
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(C) A lineal descendant of the individual, of the individual's 1
spouse or state registered domestic partner, or of a parent of the 2
individual; or 3
(D) The spouse or state registered domestic partner of any lineal 4
descendant described in (d)(i)(C) of this subsection.5
(ii) For the purposes of this subsection (10)(d), a legally 6
adopted child of an individual must be treated as the child of such 7
individual by blood. 8
(e) "Qualified heir" means, with respect to any property, a 9
member of the decedent's family who acquired property, or to whom 10
property passed, from the decedent. 11
(f) "Qualified nonfamilial heir" means an employee of a farm who 12
materially participated in farming operations on the farm and who 13
acquired property, or to whom property passed, from the decedent. For 14
the purposes of this subsection (10)(f), material participation must 15
be determined in a manner similar to the manner used for purposes of 16
26 U.S.C. Sec. 1402(a)(1) of the federal internal revenue code.17
(g)(i) "Qualified real property" means real property which was 18
acquired from or passed from the decedent to a qualified heir of the 19
decedent and which, on the date of the decedent's death, was being 20
used for a qualified use by the decedent or a member of the 21
decedent's family, but only if: 22
(A) Fifty percent or more of the adjusted value of the gross 23
estate consists of the adjusted value of real or personal property 24
which: 25
(I) On the date of the decedent's death, was being used for a 26
qualified use by the decedent or a member of the decedent's family; 27
and 28
(II) Was acquired from or passed from the decedent to a qualified 29
heir of the decedent; 30
(B) Twenty-five percent or more of the adjusted value of the 31
gross estate consists of the adjusted value of real property which 32
meets the requirements of (((f))) (g)(i)(A)(II) and (((f))) (g)(i)(C) 33
of this subsection; and 34
(C) During the eight-year period ending on the date of the 35
decedent's death there have been periods aggregating five years or 36
more during which: 37
(I) The real property was owned by the decedent or a member of 38
the decedent's family and used for a qualified use by the decedent or 39
a member of the decedent's family; and 40
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(II) There was material participation by the decedent or a member 1
of the decedent's family in the operation of the farm. For the 2
purposes of this subsection (((f))) (10)(g)(i)(C)(II), material 3
participation must be determined in a manner similar to the manner 4
used for purposes of 26 U.S.C. Sec. 1402 (a)(1) of the federal 5
internal revenue code. 6
(ii) For the purposes of this subsection, the term "adjusted 7
value" means: 8
(A) In the case of the gross estate, the value of the gross 9
estate, determined without regard to any special valuation under 26 10
U.S.C. Sec. 2032A of the federal internal revenue code, reduced by 11
any amounts allowable as a deduction under 26 U.S.C. Sec. 2053 (a)(4) 12
of the federal internal revenue code; or 13
(B) In the case of any real or personal property, the value of 14
the property for purposes of chapter 11 of the federal internal 15
revenue code, determined without regard to any special valuation 16
under 26 U.S.C. Sec. 2032A of the federal internal revenue code, 17
reduced by any amounts allowable as a deduction in respect of such 18
property under 26 U.S.C. Sec. 2053 (a)(4) of the federal internal 19
revenue code. 20
(((g))) (h) "Qualified use" means the property is used as a farm 21
for farming purposes. In the case of real property which meets the 22
requirements of (((f))) (g)(i)(C) of this subsection, residential 23
buildings and related improvements on the real property occupied on a 24
regular basis by the owner or lessee of the real property or by 25
persons employed by the owner or lessee for the purpose of operating 26
or maintaining the real property, and roads, buildings, and other 27
structures and improvements functionally related to the qualified use 28
must be treated as real property devoted to the qualified use. For 29
tangible personal property eligible for a deduction under subsection 30
(1)(b) of this section, "qualified use" means the property is used 31
primarily for farming purposes on a farm. 32
(((h))) (i) "Qualified woodland" means any real property which:33
(i) Is used in timber operations; and 34
(ii) Is an identifiable area of land such as an acre or other 35
area for which records are normally maintained in conducting timber 36
operations. 37
(((i))) (j) "Timber operations" means: 38
(i) The planting, cultivating, caring for, or cutting of trees; 39
or 40
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(ii) The preparation, other than milling, of trees for market.1
NEW SECTION. Sec. 2. This act applies to decedents dying on or 2
after August 1, 2025.3
NEW SECTION. Sec. 3. RCW 82.32.805 and 82.32.808 do not apply 4
to this act.5
NEW SECTION. Sec. 4. This act takes effect August 1, 2025.6
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