WHAT IS ESTATE TAX?
Estate Tax is a transfer tax that is, imposed on the transfer of wealth from one generation to another. The assets of a deceased person comprise the “net taxable estate,” and the net taxable estate includes all assets(probate and non-probate) and liabilities whether transferred pursuant to a Last Will and Testament, Revocable Trust, non-probate designations and/or according to the intestacy laws if there was no Will.
Federal Estate Tax and Washington State Estate tax may be due if the decedent’s taxable estate exceeds exemption amounts. The taxable estate is the current fair market value of all assets, including, but not limited to: real property, insurance, retirement accounts, IRAs, 401Ks, interest in a business, LLC units, all financial accounts, tangible personal property, etc. Liabilities(loans or debts), charitable contributions, professional fees, and administrative expenses can be used to reduce the net taxable estate.
Transfers between spouses are generally fully exempt from estate tax, thus assets may transfer to the surviving spouse tax free. There are also planning tools that may be used to mitigate tax implications.
WASHINGTON STATE ESTATE TAXES
For all deaths occurring after July 1, 2025 provides that the first $3,000,000 of an estate is exempt from Estate Tax. This was an increase from the prior exempt amount, which was $2,193,000. There are also provisions in the new law for inflation related adjustments to the $3,000,000 exemption amount starting January 1, 2026.
If the net estate is over $3,000,000, the estate tax is imposed at graduated rates. For deaths before July 1, 2025, the tax rate started at 10% and capped out at 20%. For deaths after July 1, 2025, the maximum rate was increased to 35%.
In summary, the new law provides the amount that is exempt increased, but so do the tax rates when the estate reaches the taxable threshold. While nearly everyone should have a Will or Revocable Trust to ensure a smooth and efficient transfer of assets upon death, individuals with a net worth over $3,000,000 risk facing unnecessarily high estate taxes if they fail to implement proper estate planning before passing assets to their heirs.
FEDERAL ESTATE AND GIFT TAX
In addition to the Estate Tax imposed by Washington State, the United States also imposes a Federal Estate Tax for estates in excess of the amounts of the exemption under Federal Law. For deaths occurring in 2025, the exempt amount is $13,990,000. Thus, anything over $13,990,000 may be transferred without imposition of federal estate tax. However, for deaths in 2025, Washington State still imposes an estate tax on the amounts between $3,000,000 and $13,990,00.
Recent legislation has increased the exempt amount under Federal law to $15,000,000 for deaths after January 1, 2026.
Federal Estate rates are graduated, with the rate starting at 40% of the net estate under current law.
In general terms, while estates less than $15,000,000 are not subject to Federal Estate Tax, once the $15,000,000 threshold is reached the tax rate is steep—starting at 40%.
HOW CAN I ENSURE THAT NO ESTATE TAXES ARE DUE WHEN I DIE?
The short answer is that, under current law, accumulation of wealth at certain levels results in tax liability. However, proper estate planning can mitigate the impact of estate taxes that may be assessed at the federal and state level. If you are interested in exploring your options, even if your estate is not subject to estate tax, please feel free to reach out to our office at (360)866-4000 to set up a consultation.