Steven J. Rosenthal, CPA, CFP, JD
Washington Estate Tax Planning
The Washington Estate tax can affect a large number of families seeking to pass assets to their heirs, due to the low dollar threshold for estates subject to the tax and the lack of portability between spouses. A Washington resident is taxed at gradually increasing marginal rates from 10% to 20% for estates over a $2.193 million exemption. Washington families could easily be subject to this tax as a result of owning a home along with typical retirement savings at death.
If a married Washington resident passes assets to their spouse upon death, those assets will not be subject to the estate tax, but the deceased spouse’s $2.193 million exemption will not be available to offset the taxable estate of the surviving spouse at their death. In other words, the Washington Estate Tax exemption is not transferable to the surviving spouse (i.e., not “portable”). This is contrary to the Federal Estate Tax, where a couple can claim a combined $24.12 million exemption in 2022 (double the individual exemption of $12.06 million), where a deceased spouse can pass their exemption to the surviving spouse.
Given the low dollar threshold for estate taxation in Washington, families should conder plans to minimize this tax. The most obvious plan would be to leave Washington since many states do not levy an estate tax. Family members can also give away assets during their lifetime to minimize their estate’s value upon death. Intentionally defective irrevocable trusts can be used to maintain some income for the grantor of the trust during their lifetime while keeping assets in the trust outside the estate. Credit Shelter Trusts may be used to limit the effect of the lack of portability of the Estate Tax exemption.
The Estate Tax is also changing at the Federal level. The Federal Estate Tax exemption is scheduled to be reduced to the $6 million range at the expiration of the Tax Cuts and Jobs Act in 2026 and might be lowered even further to cover budget deficits. Financial planners can provide strategies to minimize both Federal and Washington Estate taxes in consultation with estate planning attorneys as part of an overall retirement plan.
For more information about Washington Estate Tax see https://smartasset.com/estate-planning/washington-estate-tax
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