Was a Kentucky deed into a revocable family trust exempt from real estate transfer tax?

Plain-English summary

In 1994, Kentucky's Attorney General concluded that a property owner's transfer of real estate to a revocable living trust was taxable when the owner was the trustee and retained a life interest, with the spouse and children to receive the remainder. The transfer was not solely for the spouse or children, so the family-transfer exemptions in KRS 142.050(7) did not cover the deed.

The opinion treated the owner's transfer of the life estate from himself individually to himself as trustee as the feature making the transaction taxable. It suggested that a differently structured transfer leaving that life estate outside the trust would avoid the tax under the law it analyzed. That conclusion was tied to the described transaction and the statute as it stood then.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Property owners placing land in trust

The AG said transfer tax applied even though the grantor would also be the trustee. The revocable trust gave the grantor the beneficial life estate, so the deed did not fit an exemption reserved for a transfer solely benefiting a spouse or children.

Spouse and child beneficiaries

The opinion recognized exemptions under KRS 142.050(7)(e) for a transfer to a spouse and KRS 142.050(7)(l) for a parent-to-child transfer. It said the described trust did not qualify because the spouse and children held remainder interests while the grantor remained a life beneficiary.

Estate-planning counsel

The AG identified the transfer of the grantor's own life estate into the trust as the taxable part of the described arrangement. Its suggested alternative was to leave that interest outside the trust. The opinion gave that suggestion as part of its 1994 interpretation, rather than an analysis of later law.

Common questions

Did naming yourself trustee make the deed tax-free?

No. The AG said a transfer to a revocable trust for the grantor's benefit was taxable even when the grantor was also the trustee.

Did spouse and child remainder interests qualify the deed for a family exemption?

Not in this arrangement. The grantor also kept a life estate, so the trust was not solely for the spouse and children.

What feature of the transaction did the AG identify as taxable?

It identified the transfer of the grantor's life estate from individual ownership to himself as trustee. The opinion said leaving that life estate out of the transfer would change its tax conclusion.

Background and statutory framework

Counsel described a proposed deed from an individual owner to a revocable trust of which he would be trustee and life beneficiary. The AG started from KRS 142.050(2), which imposed tax on transferring real-property title unless an exception applied. It then read the spouse and child exceptions in KRS 142.050(7)(e) and (l) against the trust's mix of life and remainder interests. It also cited OAG 83-43 for its earlier view of revocable trusts benefiting a grantor.

Citations and references

• KRS 142.050(2): real estate transfer tax.
• KRS 142.050(7): enumerated exceptions to the tax.
• KRS 142.050(7)(e): spouse-transfer exemption discussed by the AG.
• KRS 142.050(7)(l): parent-child exemption discussed by the AG.
• OAG 83-43: earlier opinion about a transfer to a revocable trust for the grantor.

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG94-023.htm

Original opinion text

OAG 94-23

March 31, 1994

Karen M. Campbell

Middleton & Reutlinger

2500 Brown & Williamson Tower

Louisville, Kentucky 40202-3410

Re: Real Estate Tax

Dear Ms. Campbell:

You have asked the following question:

This firm represents an individual who desires to transfer real property owned by him individually to a revocable living trust of which he is the trustee. The sole beneficiaries of the trust are himself for life with remainder to his wife and children. Are the exemptions at subsections 7(e) and 7(l) [of KRS 142.050] available under these facts?

The transfer you describe would not be exempt from tax.

The real estate transfer tax is imposed on “the privilege of transferring title to real property.” KRS 142.050(2). Any transfer of real property is subject to the tax unless the transfer falls within one of the enumerated exceptions listed in KRS 142.050(7).

We said in OAG 83-43 that a transfer to a revocable trust for the benefit of the grantor is subject to the tax, even though the trustee is the grantor himself. We pointed out in that opinion that if the conveyance were “by a parent in trust for the sole and exclusive benefit of the children” then it would fall within the exemption for transfers between parent and child. KRS 142.050(7)(l). The same result would be reached if the transfer were to a spouse, for such transfers are also exempt. KRS 142.050(7)(e).

In the situation you have described, the grantor is the beneficiary of a life estate in the property, and his wife and children are beneficiaries of the remainder interest. The transfer is not “for the sole and exclusive benefit” of the children and spouse, and therefore is not exempt from the transfer tax.

You may wish to structure the transfer in such a way that the grantor's life estate is not transferred to the trust. The only feature of the transaction that makes it subject to tax is the transfer of the life estate from the grantor individually to himself as trustee. Without that transfer, the transaction would not be taxable.

Sincerely,

Chris Gorman

Attorney General

Ross T. Carter

Assistant Attorney General