WA Estate Tax Law Changed... Again
If it feels like Washington's estate tax laws have become a moving target, you're not imagining it.
Washington's estate tax rules have changed twice in the past year. Last year, the estate tax exemption cut off and the tax rates both increased. Now, the legislature reverted portions of this back.
WA Exemption Amount is Frozen, Again:
Now - effective July 1, 2026 - the threshold is dropped back down to $3 Million. Also, the law is no longer tied to a working CPI.
This means everything over $3 Million gets hit with an estate tax. We are stuck with $3 Million as the number; this will NOT be increasing with inflation.
WA Estate Tax Brackets are Reverting Back:
Beyond removing the inflation calculation, the 2026 law also reverts the brackets back to what they used to be.
These brackets are for your assets that exceed the limit. For example, the first bracket is for assets that exceed $3 Million. Starting in the second bracket, and everything above, the 2026 law (which reverts back to the old law) has lower tax rates.
WA Estate Tax Change Effective July 1, 2026.
Overall Effect:
While the reduction in the brackets is welcome, freezing the exemption amount to no longer increase with inflation means that more families will be caught paying WA estate taxes. As property values, retirement accounts, and investments continue to increase in value, an estate that isn't taxable today may become taxable years from now - even without any significant lifestyle changes.
Structuring Around the Washington Estate Tax
There are options to structure around the Washington estate tax, but they need to be done while you are still alive. The punchline is that the best way to avoid the estate tax is to not have the money - so spend or gift before you pass away. However, the way in which you gift may include certain trusts or other structures that allow you to ensure your legacy has an impact for many years to come.
A common opportunity for estate tax structuring is when a married couple exceeds the Washington estate tax threshold. In that scenario, there are methods available to prevent the surviving spouse from "inheriting" 100% of the assets, causing an estate tax on more than is necessary.
For example, if Pat and Sam have $4 Million in assets then we could say they each have $2 Million, and are therefore below the threshold. However, if Pat's and Sam's estate plans say give everything to my spouse when I pass away, then the surviving spouse would be sitting on the full $4 Million pot, causing a Washington estate tax when the survivor passes away.
With proper structuring, we can create a set up where the "half" that belongs to the first spouse to pass away is placed into a trust for the benefit of the survivor, but is not considered part of the surviving spouse's estate. In the Pat and Sam example, when the survivor passes away, they still only have their $2 Million and there's no estate tax.
The same concepts apply if the assets are higher numbers. We can carve off a portion of it to not be part of the surviving spouse's estate for purposes of Washington's estate tax.
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.
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