With the incoming new administration comes changes in tax law. The news media has been sharing bits and pieces of the potential changes, which vary by day and speaker. One expected modification, as espoused by the GOP, is the repeal of the federal estate and gift tax. While this may be welcome news to many voters, it is only a part of the estate tax planning equation. We need to remember that the state of Washington itself imposes one of the highest state estate tax rates in the country.
Yes, the Washington estate tax is slated to continue, regardless of potential changes to the federal law.
The exemption limit in Washington, before estate taxes are owed, is surprisingly low at $2,079,000 per person. Even if the new administration is successful in changing the federal estate tax, it is very unlikely that state lawmakers will change their own estate tax. For that reason, we urge individuals and families to take note of the low state exemption limits and high marginal rates. They should also make sure their estate plans are up-to-date and address the current, and potential, interplay of both the federal estate tax and the current state estate taxes.
As mentioned above, the Washington estate tax rates are very high in comparison to other states, ranging from 10% to 20% after the allowable exemption limitation. For an individual who is dying with a taxable estate of $5,000,000, the estate tax would be almost $380,000. Further, with the high home values in the Seattle metropolitan area, the recent recovery in the equity markets and related impact to IRA’s, and the plethora of Initial Public Offerings, many Washington residents will create $5,000,000 estates during their lifetimes. For individuals with estates over $9,000,000, the state marginal tax rate alone is a very material 20%. With the combination of the low exemption and the quickly escalating rates, Washington estate tax is something for which you will want to plan.
But have no fear; there are several planning techniques to reduce exposure to Washington estate tax, including lifetime gifting or perhaps even switching state residence. With the proposed repeal of the federal estate and gift tax, which again is no sure bet, and use of proper state estate tax planning, many residents may indeed benefit from the ability to transfer higher financial value to the next generation.
© Clark Nuber PS and Developing News, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.