Are D.C. recordation and transfer taxes due when parents transfer a personal residence to a QPRT for their children?

Plain-English summary

Parents could transfer their personal residence to a qualified personal residence trust (QPRT) for their children without D.C. recordation or transfer tax. The exemption applied whether the children were minors or adults.

OTR relied on the parent-child exemptions in D.C. Official Code §§ 42-1102(7) and 47-902(5). Neither provision limits “child” to a minor, and 9 DCMR § 500.5 expressly includes both minor and adult children.

The ruling also relied on District of Columbia v. Orleans, which treated a parent's conveyance to trustees for the benefit of the parent's children as covered by the parent-child exemption. OTR concluded that using an irrevocable QPRT did not take the transfer outside that exemption. The separate exemptions for revocable trusts did not narrow the broader parent-child rule.

What this means for you

Parents using a QPRT

On the facts addressed, transferring a personal residence into a QPRT for children was exempt from both District recordation tax and transfer tax. Adult beneficiaries did not change the result.

Estate-planning and real-estate professionals

The ruling treats the applicable exemption as the parent-child exemption, not the separate revocable-trust exemptions. The trust form did not defeat the exemption because the beneficial transfer remained from parents to their children without actual consideration.

Common questions

Does the child have to be a minor? No. OTR said the exemption applies to minor and adult children.

Does transferring the residence through trustees disqualify the transaction? No. The ruling relied on Orleans to treat a parent-to-trustee conveyance for children as covered by the parent-child exemption.

Does it matter that a QPRT is irrevocable? No. OTR said irrevocability did not diminish entitlement to the parent-child exemption.

Is the exemption based on the separate rules for revocable trusts? No. Those exemptions remain valid, but OTR said they do not narrow the parent-child exemption used for the QPRT transfer.

Citations and references

• D.C. Official Code § 42-1102(7) — recordation-tax exemption for deeds between parent and child without actual consideration.
• D.C. Official Code § 47-902(5) — parallel transfer-tax exemption.
• 9 DCMR § 500.5 — “child” includes minor and adult children.
• IRC § 2702(a)(3)(A)(ii) — QPRT provision discussed in the ruling.
• District of Columbia v. Orleans, 406 F.2d 957 (D.C. Cir. 1968) — parent-to-trustee conveyance for children qualified for the exemption.

Source

• Landing page: https://otr.cfo.dc.gov/page/otr-tax-rulings
• Ruling page: https://otr.cfo.dc.gov/node/402372
• Original PDF: https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/tax_law_and_guidance.pdf

Original ruling text

GOVERNMENT OF THE DISTRICT OF COLUMBIA
OFFICE OF THE CHIEF FINANCIAL OFFICER
OFFICE OF TAX AND REVENUE

OTR TAX RULING 2007-01
Subject: Recordation, Transfer Tax Exemptions for Qualified Personal Residence Trust
Advice has been requested as to whether a transfer to a qualified personal
residence trust (“QPRT”) for the benefit of the grantor’s children is subject to the
District’s recordation and transfer taxes under the facts described below.

FACTS
A grantor transfers real property used as personal residence to a QPRT, as defined
in Internal Revenue Code (“IRC”) § 2702((a)(3)(ii), for the benefit of the grantor’s
children, some of whom may not be minors.
ISSUE

Is a transfer of a personal residence to a QPRT for the benefit of the grantor’s
children regardless of whether they are minor or adult children, exempt from the District
recordation and transfer taxes under D.C. Official Code §§ 42-1102 and 47-902,
respectively.
CONCLUSION
As discussed below, a transfer by parents of a personal residence to a QPRT for
their children is exempt from both the District recordation and transfer taxes, whether or
not the children are minors.

LEGAL ANALYSIS
A. Use of a QPRT
A parent wishes to give his or her personal residence to the children as a gift but
retains the right to use the property for a term of years. Generally, upon the termination
of the term of years, the remainder interest passes to the children. The parent transfers

the personal residence to the children through the use of an irrevocable trust known as the
QPRT.1
The use of a QPRT provides many of the same benefits as a revocable trust,
avoiding probate, for example. A QPRT may be more advantageous than a revocable
trust, however, because the use of the QPRT provides a reduced gift tax, and the personal
residence is not included in the gross estate if the parents survive the term of years
Additionally, there is no requirement in any applicable federal estate or gift tax
statute or regulation that the transfer of the personal residence must be to a minor.

B. The Orleans Case
The issue of whether a transfer of a personal residence from a parent to a trust for
the benefit of a child without actual consideration is exempt from recordation tax first
arose in District of Columbia v. Orleans, 406 F. 2d 957 (D.C. Cir. 1968).2 The Orleans
case involved old D.C. Code § 45-722(7) (1967), the recordation exemption statute. The
current exemption statute, Code § 42-1102(7), contains identical language. Code § 45722 (1967) provides an exemption from the recordation tax for:
(7) [d]eeds between husband and wife, or parent and child, without actual
consideration therefor.
While the transfer tax was not at issue in the case, the decision would be as
equally applicable today to that tax since the current transfer tax exemption statute, D.C.
Official Code § 47-902(5), contains the same exemption language as the recordation tax.
In Orleans, the United States Court of Appeals for the District of Columbia held
that the tax exemption provided for recording deeds between parent and child made
without actual consideration applies to conveyances of real property made by parents to
trustees under a trust established for the benefit of their children. In that case, the
District, invoking the maxim that exemptions are to be strictly construed, argued that the
exemption language applied only to an outright conveyance from parent to child and not
to a conveyance in trust. The court rejected this argument holding that:
…the force of the maxim is outweighed by the clear manifestation of
legislative purpose that the recordation tax is not applicable to
conveyances from parents to children that have no “actual” consideration.
To construe this provision as inapplicable whenever conveyances are
made in trust form would virtually nullify the exemption so far as minor
children are concerned. Use of trustees for making gifts of real property to
1

A QPRT is commonly used because it provides a gift tax advantage. A QPRT is
defined in IRC § 2702(a)(3)(A)(ii) which excepts a QPRT from the special valuation
rules of IRC § 2702.
2

Under M.A.P. v. Ryan, 285 A.2d 310 (D.C. Cir. 1971), a decision of the United States
Court of Appeals for the District of Columbia, rendered before February 1, 1971,
constitutes the case law of the District of Columbia.
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minor children is not only routine, but is virtually a necessity, possibly in
legal contemplation and in any event in terms of commercial realities.
What lawyer would counsel a client to execute a lease from or mortgage to
a minor owning real estate?
Orleans at 958. Even though the court refers, at one point, to “minor children” in its
discussion, the facts of the case, as gleaned from the lower court opinion, Julius Orleans,
Trustee, et al. v. District of Columbia, Docket No. 2035, Daily Washington Law
Reporter, Jan. 5, 1968, at 1 (D.C. Tax Ct., Dec. 8, 1967) indicate that at the time the trust
indenture was executed on October 27, 1965, the four children were 22, 17, 15, and 14.
Therefore, three of the children were minors but one child, age 22, was an adult.
Nevertheless, the appellate court held that the exemption from recordation tax
under D.C. Official Code § 45-722(7) (1967), applied. It is reasonable not to place undue
emphasis on the use of the word “minor” given that one child was, in fact, an adult.
Moreover, since the exemption statute upheld by the court did not use the word “minor,”
it appears that the court’s reference to “minor” was to emphasize the practical difficulties
of executing a lease or mortgage from a parent to a child in a case in which three of the
four children were minors. The holding was not that a conveyance to an adult child did
not qualify.
Current statutes exempt a deed issued between a parent and child, without actual
consideration, from the recordation tax and transfer tax but do not require that the child
be a minor. Specifically, D.C. Official Code § 42-1102(7) exempts
[d]eeds between husband and wife, or parent and child, without actual
consideration therefor…. (Emphasis added.)
D.C. Official Code § 47-902(5) similarly provides an exemption from the transfer
tax for:
[t]ransfers between husband and wife, parent and child…without actual
consideration therefore…. (Emphasis added.)
DCMR § 500.5 lays any doubt to rest by providing that
[t]he term ‘child’ includes both minor and adult children.
Moreover, while the appellate court’s opinion did not discuss whether the trust was
revocable or irrevocable, there is no implication that its holding would not apply to both.
C. Recordation and Transfer Tax Exemptions for Revocable Trusts
Apart from the Orleans case, there is also relevant discussion in two other Code
sections which permit exemptions for the use of revocable trusts. The legislative history
of these Code sections is helpful in understanding the Council’s concern in permitting use
of a revocable trust, still an important device, and the reason for the enactment of several
related exemptions. Code § 42-1102 and Code § 47-902 exempt certain deeds from the
recordation and transfer tax, respectively. Relevant to this ruling, Code §§ 42-1102 (17),
(18) and (19) exempt a deed of real property from the recordation tax for
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(17) [a] deed by a transferor that conveys bare legal title to the trustee of a
revocable trust, without consideration for the transfer, where the transferor
is the beneficiary of trust;
[18] [a] deed to property transferred to a beneficiary of a revocable trust as
the result of the death of the grantor of the revocable trust;
[19] [a] deed to property transferred by the trustee of a revocable trust if
the transfer would otherwise be exempt under this section if made by the
grantor of the revocable trust….
Similarly, Code §§ 47-902 (12), (13), and (14) provide identical exemption language
from the transfer tax for the above transfers.
These exemptions were added by the “Revocable Trust Tax Exemption Amendment Act
of 1991” (“Act”).
The Report of the Committee of the Whole (“Committee Report”) on Bill 9-53
creating the Act indicates the City Council’s intention to reverse regulations subjecting
certain transfers of real property into or out of revocable trusts to transfer and deed
recordation taxes. See 9 DCMR §§ 512.1 and 611.1. The Committee stated:
[a]ccording to trust and estate planning experts, these costs are high
enough to discourage many individuals who would otherwise establish
revocable trusts from doing so, thus depriving themselves and their
families of a useful and elsewhere commonly accepted way of planning
for mental and physical disability late in life. Court intervention, as in the
form of a conservatorship proceeding, becomes the only means by which
intended trustees or beneficiaries can gain control of an incompetent or
incapacitated individual’s real property for the benefit of the individual.
After the property owner’s death, probate is the only avenue available for
settling an estate. These kinds of proceedings can often prove timeconsuming and expensive.
The effect of the Bill 9-53 would be to nullify the existing rules
[subsequent to 1984] by explicitly exempting certain transfers into or out
of a revocable trust from the transfer and deed recordation taxes. By
doing so, the Committee seeks to maximize the options considered by
those who wish to plan for the disposition of their assets in the event of
future disability. (Emphasis added.)
The Committee Report further stated that enactment of the bill’s provisions
relating to transfer and recordation tax, respectively, would “nullify 9 DCMR 611.1 by
exempting certain transfers into or out of a revocable trust from the transfer tax” and

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“nullify 9 DCMR 512.1 by exempting certain transfers into or out of a revocable trust
from the deed recordation tax.”3 (Emphasis added.)
The Committee Report, however, indicated that for many years prior to 1984 the
practice in the District and in Virginia and Maryland was to treat transfers into revocable
trusts as nontaxable. “While legal title to real property changes, in the technical legal
sense, upon the establishment of a revocable trust and the naming of a trustee, beneficial
ownership is retained by the grantor and can be revoked at any time.”
The Act restored prior practice in this area by ensuring that certain transfers to
revocable trusts were exempt from District recordation and transfer taxes. The Act also
did not require that a transfer of property to a revocable trust must be for the benefit of a
minor in order to invoke the exemption. Moreover, it is clear that the Council never
intended to limit the holding of the Orleans case just to transfers to revocable trusts when
it enacted the above exemptions for transfers to those trusts.
Many of the sound reasons providing for disability late in life, avoiding probate,
for example, that led to the Council’s recognition of the revocable tax exemption, would
apply to the use of the QPRT. It is a valid inference to assume that if a QPRT had been
in use when revocable trusts were exempted under the statute, that their use would have
been specifically exempted from the recordation and transfer taxes as well.
Thus, from a reading of the Orleans case, D.C. Official Code §§ 42-1102(7) and
47-902(5), and the history of the enactment of the revocable trust exemptions, there is no
requirement that a child has to be a minor. Moreover, DCMR § 500.5 defines a “child”
to include both minor and adult children. Importantly, there is no requirement in the
federal gift and estate statutory framework that requires that a child be a minor. For the
District to interpret its recordation and transfer tax exemption statutes differently would
be anomalous.
Nor should there be any confusion as to which exemption is applicable. The
exemption for the use of a QPRT is the one from a parent to a child. The fact that a
QPRT must be irrevocable does not diminish its entitlement to this exemption. The
exemptions for revocable trusts discussed above are still valid but do not narrow the
parent-child exemption.
Accordingly, the transfer of a personal residence to a QPRT by parents for the
benefit of their children is exempt from both the District recordation and transfer taxes
whether or not the children are minors.

3

A notice of proposed rulemaking was published on September 7, 2007, thus conforming
to the Committee Report’s stated intent to nullify them. The notice of proposed
rulemaking will be followed by a notice of final rulemaking.
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