The estate planning benefits of legalized marijuana is a possibility for anyone seeking safe-haven investment opportunities. The estate property ownership laws of “pot legal” states differ by jurisdiction, defining the option of estate cannabis asset transfers. Questions to ask an estate planner will probably relate to issues of transferability and rules affecting distribution of estate or trust held cannabis assets to beneficiaries. If an estate planning client already owns a marijuana business, estate succession rules may apply. Planned giving specialists assisting cannabis estate owners with nonprofit charitable giving plans, will want to review the rules further to ensure a philanthropic contributor’s intent is carried out within the limits of the law.
Transfer of cannabis-linked assets to heirs at the time of a decedent’s death, requires that an estate adhere to rules of tax treatment under state and federal law. The federal Internal Revenue Service (IRS) code for agricultural business tax filers applies to income tax reporting of farm activities. However, due to the differential interpretation of cannabis asset legality across the 50 U.S. states, state tax board tax treatment applying to transfers of these business assets to an estate, or distribution to beneficiaries, varies.
Despite the shifts in the legality cannabis as “marijuana” at the state level in many states, the IRS can still demand tax payment on any transferable business assets from a cannabis enterprise. If the marijuana business was created for purposes of medical marijuana cultivation and distribution, registration of the entity requires income tax reporting under federal IRS rules. Medical marijuana businesses that are not registered entities may still be subject to taxation. Depending on the state, business property asset transfer of cannabis-related enterprises to an estate or trust, can afford the owner “property asset” exemption.
At present, not all states permit the transfer of cannabis assets to an estate. In some state jurisdictions like New York, rules of interstate succession planning for estate held cannabis assets can lead to penalties, or even punitive sentencing. Despite variances in state legislation where marijuana is concerned, acknowledgement of differentiated state definition of marijuana assets ranges from “criminally illegal,” to “decriminalized yet illegal,” and “legal for medical purposes exclusively,” or for purposes of adult “recreational use.”
If marijuana assets are seized, and a beneficiary is held criminally liable for estate possession of illegal cannabis products or materials intended for distribution both inside and outside a state jurisdiction, both federal and state rules for penalties and sentencing may apply. There is also the potential that a court will not permit an executor or trustee to administer trust or will cannabis assets. Cannabis assets part of a state-legal medical treatment program may be impacted by will directives for an estate owner’s end-of-life healthcare, thus affecting a will appointed executor’s ability to liquidate those assets for purposes other than for what they were intended.
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Cannabis business succession planning for an estate is subject to taxation of income generated from safe-haven assets for future distribution of trust value to final beneficiaries.
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