Avoiding Washington Estate Taxes with Federal Strategies
Back in 2017 the federal estate tax exemption was increased, and has been increasing each year with inflation, reaching $13.990 Million for 2025. However, that increase was only temporary - set to revert back down to around $7 Million in 2026.
The Increased Federal Estate Tax Exemption is Officially Permanent - Going up to $15 Million in 2026
The increased federal estate tax exemption was made permanent under the "One Big Beautiful Bill Act". The federal exemption amount will be $15 Million starting January 1, 2026, and will continue to increase yearly with inflation. On the federal level, a married couple is able to double up. This means if 1 spouse passed in 2025 and the other spouse passed in 2026, that married couple's joint federal exempted amount is $28.990 Million. While paperwork needs to be done after the first spouse passes to claim the full amount, the federal exemption does not require the same pre planning needed for the Washington state exemption.
The Federal Gift Tax and the Federal Estate Tax are Intertwined
There is also a federal gift tax. The federal estate and gift tax are intertwined - the federal estate tax exemption amount is actually the amount you are able to gift tax free in life AND in death. There are many reasons people choose to gift assets away during their lifetime, rather than having the recipient wait until they pass away. The lifetime exclusion amount - $13.990 Million for 2025 - applies whether the gift was made during your lifetime, or after you pass away as part of your estate.
You may have heard of the annual gift exclusion - which is $19,000 for 2025. This annual exclusion is the amount you can gift away in a given year to any one person without it being tagged against your lifetime amount. Once you make a gift exceeding the annual exclusion amount, that should be reported to the IRS and is tagged against your lifetime amount.
For example, if you gift $1 Million to someone in a single year, that exceeds $19,000 and therefore needs to be reported. This means you have used up $1 Million of your lifetime exclusion amount. Under the 2025 limit of $13.990 Million, this mean you would still have $12.990 Million of your lifetime exclusion amount left before any federal gift or estate taxes are owed.
Great Planning Opportunities for Washington Residents
As an example for why any of this matters, let's take today's numbers: Washington state’s estate tax exemption is $3 Million and the federal gift/estate tax exemption is $13.990 Million.
Let's say Pat and Sam are married and have $7 Million in assets.
On the Washington level, we can do some planning to ensure they each get their $3 Million exemption, so $6 Million for the married couple before there's a Washington estate tax, but at $7 Million, they are still over the Washington limit by $1 Million.
On the federal level, they are well under the $27.98 Million exclusion amount ($13.99M/person)
Assuming they are ready to part with some of their assets, they can do some gifting today to get them below the Washington cut off, and avoid any estate taxes altogether.
For instance, Pat and Sam could gift $2 Million away today. This would be reported to the IRS because it exceeds the annual exclusion amount of $19,000. (Maybe it goes into a trust or some other structure to protect it).
Now, Pat and Sam have $5 Million left in assets and have entirely avoided any Washington or federal estate taxes.
Assuming they did their pre planning, on the Washington state level they are comfortably below the $3 Million they are each allowed to have - $6 Million total.
On the federal level, they have used up $2 Million of their lifetime amount (which is $27.98 Million in 2025 for a married couple). They still have $25.98 Million remaining of their federal exclusion amount. This means if their assets start getting close to $6 Million again, they can gift more to stay under that Washington estate tax cut off.
The same idea applies for someone who is not married.
For 2025, the estate tax cut off is $3 Million for Washington state and $13.990 Million on the federal level. An unmarried person could gift up to the federal limit to keep themselves below the Washington limits, avoiding estate taxes.
If you want to read more estate planning tips, you can check out my blog.
Please note, careful consideration should be made when using this gifting strategy as there are many other types of taxes that could be implicated. Make sure you are using a trusted advisor.
Want to learn more? Schedule Your Consultation, and take the first step toward creating a complete estate plan that protects what matters most to you and your loved ones.
