Would two planned no-consideration transfers, first to a revocable trust and immediately from that trust to an LLC, each receive New Hampshire's minimum real estate transfer tax?

Plain-English summary

The New Hampshire Department of Revenue Administration ruled on two proposed deeds involving three properties: from R. and D. to a revocable trust, then immediately from the trust to a New Hampshire LLC. The petitioners said neither deed would involve consideration and requested the minimum real estate transfer tax for each transfer.

The Department ruled that both transfers were contractual and taxable. It imposed the minimum tax on the first transfer to the trust. For the second transfer, from the trust to the LLC, it used the property's fair market value as the measure of consideration. The Department viewed the trust as a conduit in a series of transactions whose substance was moving real estate into the LLC, rather than funding the trust as a testamentary substitute with that property.

What this means for you

A revocable trust used briefly as a step toward moving real estate to an LLC may not receive the same transfer tax measure on each deed. In this ruling, the Department applied RSA 78-B:9, II to examine the entire series and Rev 802.02(c)(2)'s testamentary-substitute requirement when deciding the second deed's measure.

The PDF says "Effective 12/10/01" but has no separate signed issue date. The petitioners' proposed $40 minimum is a historical amount in their request, not current tax guidance.

Common questions

Q: Did the Department apply the minimum tax to both transfers? A: No. Its fourth holding imposed the minimum tax on the deed into the trust; its fifth used fair market value for the deed from the trust to the LLC.

Q: Why was the second deed measured by fair market value? A: The Department found that the trust held the property only as a conduit for the transfer to the LLC, not as a testamentary substitute.

Q: Were the transfers taxable even though the petitioners said there was no consideration? A: Yes. The Department expressly ruled both transfers were contractual and subject to tax.

Q: Can another taxpayer rely on this ruling?
A: No. The document limits its holdings to these petitioners and facts, and the official archive says other taxpayers may not rely on declaratory rulings.

Citations and source limits

The analysis applies RSA 78-B:1, I(a), RSA 78-B:1-a, II(c), RSA 78-B:9, II and III, and N.H. Code Admin. R. Rev 802.02(c)(2). The PDF supplies an effective date but no separate signed issue date. The $40 figure appears in the petitioners' request; the holding itself says “minimum tax” without stating a dollar figure.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Document #7610

Original ruling text

IN THE MATTER OF THE PETITION OF R. and D.

FOR A DECLARATORY RULING

Document #7610, Effective 12/10/01

Pursuant to RSA 541-A:1, IV, RSA 541-A:2, I(d) and Rev 209.01 et seq., R. and D. (Petitioners), petitioned the Department of Revenue Administration (Department) with respect to the method used to determine the amount of real estate transfer taxes when: (1) transferring real estate to a revocable trust and (2) immediately transferring the same real estate from a revocable trust to a limited liability company.

DETERMINATION REQUESTED BY THE PETITIONERS

Under the proposed transaction, the Petitioners would transfer 3 pieces of real estate to a revocable trust which would, in turn, transfer the real estate to a limited liability company. The Petitioners request that, since the transfers are for zero consideration, the New Hampshire Department of Revenue Administration should assess the real estate transfer tax at the minimum amount of $40 for each transfer.

Petitioners request a response to the following question:

1. When real estate is transferred from individuals to a revocable trust for zero
   consideration, and then subsequently the real estate is transferred from the trust to a limited liability company for zero consideration, should the actual price or consideration for the transfer be used rather than the market value in determining the real estate transfer tax?

FACTS PRESENTED BY THE PETITIONERS

The Petitioners made the following representations of relevant facts:

1. The Revocable Trust - 2001 was executed for the purposes of estate planning with
   an original fund of $1.00. The trust meets the requirements of a revocable trust: normal discretionary powers vested in a trustee and not requiring beneficiary consent, management and use of the property by the trustee for the use and benefit of the beneficiaries, it does not provide for the transfer of any beneficial interest and it was created for estate planning. The trustee of the trust is R. Upon his death, the trust becomes irrevocable.

2. The Petitioners, intend to convey, by quitclaim condominium deed to the
   Revocable Trust - 2001, three (3) pieces of property known as 1, 2 and 3 located in NH.

3. The trustee, R., intends to convey, by quitclaim condominium deed, the same 3
   pieces of property from the Revocable Trust to a LLC in NH. R. is the manager and has an attorney as the registered agent for the LLC.

4. The proposed transaction consists of 2 transfers.

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5. The business reason for the proposed transaction would be to provide limited
   liability to the taxpayers and ease of property management for estate planning purposes.

REVISED STATUTES ANNOTATED [RSA] AT ISSUE

NH RSA 78-B:1
NH RSA 78-B:2
NH RSA 78-B:9

RULES AT ISSUE

N.H. Code Admin. R. Rev 802.02

PETITIONERS= REPRESENTATIONS

To the best of Petitioners= knowledge, the issues that are the subject of this petition:

1) Are not under examination by the department;

2) Have not been examined by the department;

3) Are not under consideration by the department in connection with a return of a prior period; and

4) Are not pending in litigation.

FINDINGS

RSA 78-B:1, I. (a) imposes a tax upon the sale, granting and transfer of real estate and any interest therein including transfers by operation of law. There is a presumption under the statute that every transfer is taxable unless it is specifically exempt from taxation under the exceptions provided in the statute. RSA 78-B:2 provides the exemptions authorized by the legislature.

Rev 802.02 provides that transfers to or from a revocable trust are contractual transfers, and that under certain circumstances the department shall not presume that the price or consideration paid is the fair market value of the property transferred as authorized by RSA 78-B:9, III. One of the requirements is that the trust must be created and funded for estate planning circumstances as a testamentary substitute.

Additionally, RSA 78-B:9, II provides that the if there is occasion to determine if there has been a sale, grant or transfer of real estate within this state, the commissioner shall look to the substance of the transaction or series of transactions to determine if a sale, grant or transfer of real estate has occurred.

The trust itself was created for the purposes of estate planning as a testamentary substitute. However, under the proposed transactions, the funding of the trust with real estate that is to be immediately transferred to a limited liability company, the

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trust is not intended to act as a testamentary substitute but rather a conduit to accomplish the transfer of the real estate to the limited liability company. The transfers are to achieve the business purpose of limiting liability. The transfers do not satisfy the requirement found in Rev 802.02(c)(2) that the trust be funded as a testamentary substitute. Therefore, the commissioner shall determine the actual price or consideration based upon the fair market value of the property under RSA 78-B:9,III.

The substance of the series of transactions is the transfer of real estate by R. and D. to the limited liability company of which R. is the sole member. RSA 78-B:1-a, II, (c) specifically states that transfers to or from any interest holder to an interest in which he holds an interest is a contractual transfer that is subject to tax. If the department looks past the form of the transactions to their substance as authorized by RSA 78- B:9, II, then the transfers are taxable and subject to tax based upon the fair market value of the property.

RULINGS

Based on the facts as represented by the petitioners and the statutory provisions discussed above, the Department makes the following rulings:

(1) The transfers are contractual and subject to tax.

(2) The transfer of the real estate to the trust was not for the purposes of acting as a testamentary substitute.

(3) The series of transactions are in substance a transfer of real estate from an interest holder in an organization to the organization in which he owns an interest.

(4) The minimum tax shall be imposed on the transfer of the real estate to the trust.

(5) The measure of the price or consideration on the transfer of the real estate from the trust to the limited liability company shall be the fair market value of the property.

Stanley R. Arnold, Commissioner