Legalized marijuana is having important legal impact on state property rules, and estate law is no exception. In “pot legal” states, estate planning attorneys are faced with questions about the transferability of cannabis assets to an estate or trust, and existing rules affecting distribution to beneficiaries. If an estate planning client owns a marijuana business, the option of estate transfer of cannabis assets will depend on both federal and state statute to ensure a client’s intent is carried out within the limits of the law.
Estate distribution of cannabis-linked assets at death is an issue that has received differential treatment under state and federal law. In some states, a will may be seized, and a beneficiary held criminally liable for an estate’s possession of illegal cannabis products and materials intended for distribution. There is also the potential that courts will not permit an executor to administer a will which contains cannabis assets. If those assets are part of a state-legal medical treatment program, there will be issues associated with an executor’s capacity to administer distributions from an estate or trust.
In New York, interstate planning of an estate involving cannabis has the potential of leading to penalties, or even punitive sentencing for an estate owner and their beneficiaries. Despite the variances in state legislation of marijuana on a continuum ranging from “criminally illegal,” to “decriminalized yet illegal,” “legal for medical purposes exclusively,” or for adult “recreational use,” the competing legal interpretations of cannabis as a viable business asset persists.
Despite the shifts in the legality cannabis as “marijuana” at the state level in many states, the federal Internal Revenue Service (“IRS”) can still demand payment of estate tax on any transferable business assets connected with such an enterprise. If the marijuana business was organized for purposes of medical marijuana cultivation and distribution, registration of the entity requires tax reporting under federal law. Businesses not registered medical marijuana entities, may still be evaluated for taxation. The continuation of IRS tax-free status for business property assets in 2017, however, offers cannabis-related enterprises broad interpretation of “property asset” exemption.
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Like other business owners, investors in cannabis industry enterprises seek to leave those assets to heirs and beneficiaries at time of death. Depending on the state jurisdiction where the estate will be held, laws surrounding the transferability and distribution of cannabis assets may prohibit an owner from doing so. Avoid any penalties for estate transfer of assets tied to a marijuana enterprise classified as “criminal” or “illegal” under federal law. With the advisory of a licensed attorney at law, demonstration of an estate or trust’s adherence to maximum allowable limits protects an estate owner and its beneficiaries from probate delays or possible punitive damages in the future.
Estate Law Firm NY
Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about an estate or trust law related matter.
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