Opinion
Opinion By: Chris Gorman, Attorney General; Ross T. Carter, Director, Division of Civil and Environmental Law
Subject: Real Estate Transfer Tax
Syllabus: KRS 142.050(7)(m) exempts transfers to a trust only if the transfer would have been exempt if it were made directly from grantor to beneficiary.
Statutes construed: KRS 142.050(7)
OAGs cited: OAG 94-23(w)
Opinion of the Attorney General
The question presented is whether our opinion in OAG 94-23 should be modified in light of the 1994 amendment to KRS 142.050(7).
KRS 142.050 imposes a tax on the transfer of real property. Subsection 7 of the statute provides several exemptions from the tax, including exemptions for transfers between family members, but not including any exemptions for transfers to or from a trust. We have said that the tax applies to a transfer to a trust in which the grantor, trustee, and beneficiary are the same person (OAG 83-43), while a transfer to a trust for the benefit of the grantor's children is not taxable, even if the grantor is the trustee. OAG 94-23.
In 1994 the following exemption was added to the list in KRS 142.050(7):
[The transfer of] property to a trustee, to be held in trust, or by a trustee to a beneficiary of the trust, if a direct transfer from the grantor of the trust to each individual beneficiary of the trust would have qualified for an exemption from the tax pursuant to one of the provisions of this section. As used in this paragraph, "trust" shall have the same definition as contained in KRS 386.800.
This provision may be parsed in two ways: the word or can be construed to separate the expression "to a trustee, to be held in trust" from the remainder of the paragraph, or it can be construed to group that expression with "or by a trustee to a beneficiary of the trust." The alternative constructions may be represented as:
1. The statute exempts transfers of property:
to a trustee, to be held in trust,
or
by a trustee to a beneficiary of the trust, if a direct transfer from the grantor of the trust to each individual beneficiary of the trust would have qualified for an exemption.
2. The statute exempts transfers of property:
to a trustee, to be held in trust, or by a trustee to a beneficiary of the trust,
if a direct transfer from the grantor of the trust to each individual beneficiary of the trust would have qualified for an exemption.
We cannot discern any plausible justification for the first interpretation. Nothing in the statute suggests that the legislature would intend to exempt from taxation every transfer to a trustee. Such an interpretation could very quickly erode the tax base if knowledgeable practitioners structure transfers as trusts rather than direct conveyances. On the other hand, the second construction is logically consistent with a legislative intent to place transfers to trustees on the same footing as direct conveyances to beneficiaries.
We construe KRS 142.050(7)(m) as exempting transfers to or from trustees only if the transfer would be exempt if made directly from grantor to beneficiary. The provision does not exempt all transfers to trustees.
Because KRS 142.050(7)(m) comprehensively covers the subject of transfers to trustees, OAG 94-23 is out of date and is hereby withdrawn.