How To Avoid Washington State Estate Tax

How To Avoid Washington State Estate Tax In the state of Washington, estate tax rates are progressive, ranging from 10% to 20%. This tax applies to estates valued at $2.193 million or more. If you’re a resident of Washington and contemplating estate planning, this comprehensive guide provides essential insights. Should you anticipate that your estate might be subject to this tax, it’s advisable to consider consulting a financial advisor. SmartAsset’s financial advisor matching tool can connect you with a suitable advisor in your locality tailored to your specific needs.

Washington Estate Tax Exemption

As of 2021, the estate tax threshold in Washington is set at $2.193 million. Estates valued at less than $2.193 million are exempt from Washington state estate tax. However, if the estate surpasses this threshold, the tax is applied solely to the portion of the estate exceeding $2.193 million.

Progressive Washington Estate Tax Rates

Washington’s estate tax follows a progressive structure, with varying rates applied based on the estate’s value. To calculate your estate tax, follow these steps:

1. Determine your taxable estate bracket using the chart below.
2. Calculate base taxes owed on the money within your bracket.
3. Find out how much your taxable estate exceeds the lower limit of your bracket.
4. Multiply this excess amount by the corresponding marginal rate.
5. Add this figure to the base taxes to arrive at your total estate tax liability.

For example, suppose your total estate is worth $7 million, with a $2.193 million exemption. Your taxable estate equals $4.807 million. Based on the chart below, your base taxes are $550,000. With a threshold of $4 million, subtract this from $4.807 million to get $807,000. Multiply $807,000 by the marginal rate of 18%, resulting in $145,260. Add this to the base taxes ($550,000), and your total Washington estate tax amounts to $695,260.

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Washington Estate Tax Rates

• Taxable Estate* | Base Taxes Paid | Marginal Rate | Rate Threshold**
• $0 – $1 million | $0 | 10% | $0
• $1 million – $2 million | $100,000 | 14% | $1 million
• $2 million – $3 million | $240,000 | 15% | $2 million
• $3 million – $4 million | $390,000 | 16% | $3 million
• $4 million – $6 million | $550,000 | 18% | $4 million
• $6 million – $7 million | $910,000 | 19% | $6 million
• $7 million – $9 million | $1.1 million | 19.5% | $7 million
• Over $9 Million | $1.49 million | 20% | $9 million

*The taxable estate is the total amount exceeding the $2.193 million exemption. **The rate threshold marks the point at which the marginal estate tax rate takes effect.

Understanding Estate Tax

Estate tax, often referred to as the “death tax,” is levied on the estate of a deceased individual before the assets are passed on to their heirs. Its application depends on the estate’s value and varies by state. Estate tax should not be confused with inheritance tax, which some states impose on inherited money.

Washington Inheritance Tax and Gift Tax

Washington does not have an inheritance tax, but if you inherit from another state, their inheritance tax laws may apply. Additionally, Washington has no state gift tax, which means you’ll only be subject to the federal gift tax. In 2022, you can gift up to $16,000 per recipient without incurring tax consequences, increasing to $17,000 in 2022. Amounts exceeding these limits count against your lifetime exemption of $12.92 million.

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Washington Estate Tax for Married Couples

Married couples should note that Washington’s estate tax is not portable. When both spouses pass away, only one exemption of $2.193 million applies.

Federal Estate Tax

Besides Washington’s estate tax, there’s also a federal estate tax that may be applicable, but the federal exemption is considerably higher. The federal estate tax exemption is $12.06 million in 2022, rising to $12.92 million in 2023. It is portable between spouses, allowing couples to protect up to $25.84 million from estate taxes by taking specific legal steps. The highest federal estate tax rate is 40%. You can determine your federal estate tax liability using the table below in a manner similar to the calculation for Washington’s estate tax.

Federal Estate Tax Rates

• Taxable Estate* | Base Taxes Paid | Marginal Rate | Rate Threshold**
• $1 – $10,000 | $0 | 18% | $1
• $10,000 – $20,000 | $1,800 | 20% | $10,000
• $20,000 – $40,000 | $3,800 | 22% | $20,000
• $40,000 – $60,000 | $8,200 | 24% | $40,000
• $60,000 – $80,000 | $13,000 | 26% | $60,000
• $80,000 – $100,000 | $18,200 | 28% | $80,000
• $100,000 – $150,000 | $23,800 | 30% | $100,000
• $150,000 – $250,000 | $38,800 | 32% | $150,000
• $250,000 – $500,000 | $70,800 | 34% | $250,000
• $500,000 – $750,000 | $155,800 | 37% | $500,000
• $750,000 – $1 million | $248,300 | 39% | $750,000
• Over $1 million | $345,800 | 40% | $1 million

*The taxable estate is the total amount exceeding the $12.92 million exemption. **The rate threshold marks the point at which the marginal estate tax rate takes effect.

Overall Washington Tax Landscape

Washington’s tax landscape presents a mix of elements. The state boasts no income tax, making it retirement-friendly, particularly for those with income sources like Social Security and retirement funds. However, Washington compensates with relatively high sales taxes, often ranging from 8% to 10% when county rates are included. Property taxes, on the other hand, are relatively low, with an average effective rate of 1.06%.

Estate Planning Tips

If you require assistance with estate planning or any financial planning aspect, consider consulting a professional financial advisor. Finding the right advisor is simple using SmartAsset’s free tool, which connects you with up to three vetted financial advisors in your area. You can interview these advisor matches at no cost to determine the best fit for your financial goals. Additionally, when planning your estate, keep track of your retirement income, including Social Security payments, using our Social Security calculator. If you want to ensure a smooth transition of assets upon your passing, you might consider a living trust to delegate control over some of your assets to a trustee.