If you reside in Washington, you might be curious about the estate tax; what it means, and its potential impact on your assets and loved ones upon your passing. In this article, we will dive into the details of the Washington estate tax, including the current exemption, how it is calculated, and ways to minimize it.
What is the Washington Estate Tax?
The Washington estate tax is a tax on the transfer of assets after a person’s death. It’s different from the federal estate tax and is calculated on the value of the assets the person had when they died.
Current Exemption and Tax Rates
The current Washington estate tax exemption is $2.193 million for deaths occurring in 2024. This means that if the total value of the deceased’s assets is below this amount, no estate tax will be owed. However, any amount above the exemption will be subject to the estate tax.
The tax rates for the Washington state estate tax range from 10% to 20%, depending on the value of the estate. The tax rate goes up as the estate value goes up, following a graduated scale.
How is the Washington Estate Tax Calculated?
The Washington state estate tax is calculated by taking the total value of the deceased’s assets and subtracting any debts, funeral expenses, and administrative costs. The remaining amount is known as the “taxable estate.”
The taxable estate is then subject to the estate tax rates mentioned above. For example, if the taxable estate is $3 million, the first $2.193 million would be exempt, and the remaining $807,000 would be subject to the tax rates.
Can the Washington Estate Tax be Avoided?
While the Washington state estate tax may seem daunting, there are ways to potentially avoid or minimize it. Here are a few strategies to consider:
Gifting Assets During Your Lifetime
One way to potentially avoid the Washington estate tax is to gift assets to your loved ones during your lifetime. This reduces the value of your estate and may bring it below the exemption threshold.
However, it is important to note that there are gift tax implications for large gifts. The annual gift tax exclusion for 2024 is $18,000 per donee, per year. In 2024, gifts are applied against the $13.6 million exemption in addition to the donee exclusion. Any amount above this will incur taxes.
If the estate tax is still in existence when the donor dies, the estate will include prior taxed gifts and prior untaxed gifts counted against the $13.6 million exemption. If the estate, combined with prior gifts, surpasses the estate tax exclusion amount for the year of death, any resulting estate tax is mitigated by previous gift tax payments. Some states impose gift taxes.
Caution: Under the estate/gift tax scheme now applicable, gift tax can result in situations where there would be no estate tax if assets of the same value had been held at death. Gifts that bring the gift total above the lifetime exemption should be made only on the specific advice of a tax professional. Gift tax is continued after estate tax repeal as a device to limit asset transfers designed to avoid income tax.
Annual Gifts
The annual gift tax exclusion provides a simple, effective way of cutting estate taxes and shifting income. You can make annual gifts in 2024 of up to $18,000 ($36,000 for a married couple) to as many donees as you desire. The $18,000 is excluded from the federal gift tax so that you will not incur a gift tax liability. Further, each $18,000 you give away during your lifetime reduces your estate for federal estate tax purposes.
Creating a Trust
Another way to potentially avoid the Washington estate tax is to create a trust. A trust is a legal entity that holds assets for the benefit of your chosen beneficiaries. By transferring assets into a trust, they are no longer considered part of your estate and may not be subject to the estate tax.
There are various types of trusts, each with its benefits and considerations. Consult with an estate planning attorney to determine the best type of trust for your specific situation.
Taking Advantage of the Marital Deduction
If you’re married, you can potentially avoid the Washington estate tax by leveraging the marital deduction. The marital deduction allows you to leave an unlimited amount of assets to your spouse without incurring estate taxes.
However, it is important to note that this deduction only applies to spouses who are U.S. citizens. If your spouse is not a U.S. citizen, there are certain limitations to the marital deduction.
Life Insurance
Life insurance can also be a useful tool in avoiding the Washington estate tax. Naming a beneficiary for your life insurance policy ensures that the death benefit pays directly to them, excluding it from your estate.
It is important to note that if you are the owner of the life insurance policy, the death benefit may still be subject to estate taxes. To avoid this, you can transfer ownership of the policy to someone else, such as a trust.
Speak with an Experienced Estate Planning Attorney in Spokane Today.
The Washington estate tax can be a complex and sometimes overwhelming topic. However, by understanding the current exemptions, how the tax is calculated, and potential strategies for minimizing, you can better plan your estate and ensure your assets are protected for your loved ones.
Remember to regularly review your estate plan and consult with an estate planning attorney to ensure it aligns with the current exemptions and any changes that may occur in the future. With proper estate planning, you can minimize the impact of Washington estate taxes and leave a lasting legacy for your loved ones.
