Request By:
Mr. James S. Secrest
County Attorney
Box 35
210 W. Main Street
Scottsville, Kentucky 42164
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
You have asked whether the transfer tax under KRS 142.050 applies to a transfer, for nominal consideration, of a deed from an individual to that same individual as trustee of his own revocable trust. You have also asked whether such a transaction is exempt under KRS 142.050(8)(k).
A trust exists when the legal rights to property are in one person known as the trustee and other rights, such as equitable rights, are in another person known as the beneficiary. The beneficiary thus becomes the holder of the equitable title to the property and the trustee is the person who has legal title and who is responsible for carrying out the terms of the trust. See Merchants National Bank of Aurora v. Frazier, et al, 67 N.E.2d 611(1946). A required characteristic of a trust is that the legal and equitable titles are not in the same person. State v. Superior Court For Spokane County, 116 P.2d 752(1941).
A trust normally ceases to exist upon the completion of its terms and conditions and is not revocable at the will of the grantor unless so stated in the trust.
In Chandler v. Commissioner of Internal Revenue, 119 F.2d 623(C.C.A. 1941), the court found that because the settlor of that trust, or maker, reserved the right to deal with the trust assets for his own benefit, it was a revocable trust. The court stated as follows:
"As owner of the assets Chandler, of course, had the right to reserve such a power. His doing so clearly indicates that he did not intend to impose upon himself fiduciary restraints enforcible by the trust beneficiaries. We think that the Board was entirely justified in construing the power as a reservation by the settlor of the right to revoke the trust." at page 626.
The court then reasoned that the income from that trust was taxable to the maker of the trust since he maintained complete control over the property by virtue of his power of revocation.
Referring back to the specific question, it can be seen from the above that the grantor of the deed does not relinquish his legal interest in the property conveyed. This is especially true in view of the fact that it is a transfer to a revocable trust. In other words, the grantor does not relinquish his right to control over the property. You also state that the transfer is for nominal consideration. Following the above analogy, it would appear that no transfer tax would be due because nothing other than a revocable equitable interest is conveyed.
The real estate transfer tax is imposed by KRS 142.050(2) which states as follows:
"A tax upon the grantor named in the deed is imposed at the rate of fifty cents (50 ) for each $500 of value or fraction thereof, which value is declared in the deed upon the privilege of transferring title to real property."
In the present case, a transfer of title by deed within the meaning of this section has occurred because this statute does not require that both the equitable and legal title be transferred.
Additionally, none of the exemptions under KRS 142.050(8) apply. In Lynch v. Kentucky Tax Commission, Ky., 333 S.W.2d 257(1960), the court set forth the principle that deductions not specifically mentioned in the statute are not allowed stating as follows:
"The language of the statute disallows any deduction not specifically mentioned. The legislative intent is plain that the only deductions to be allowed are those mentioned in the statute." at page 261.
You do not mention the purpose of the trust nor whom the beneficiary is which could have some bearing as to whether this is an exempt transfer. For instance, if this transfer is by a parent in trust for the sole and exclusive benefit of the children, it would be exempt under KRS 142.050(8)(e). There is definitely no exemption under KRS 142.050(8)(k) which states:
"The tax imposed by this section shall not apply to a transfer of title: . . . (k) Between individuals and a corporation, with only nominal consideration therefore. . . ."
The reason this exemption does not apply is that the grantee is a trust and not a corporation. Therefore, based on the facts known to us, no exemption exists under this statute.