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Sep
20

Washington State Estate Taxes

I am often asked about the taxes that could be levied on an estate by the IRS. While the federal estate tax can be significant for those with very large estates, changes to the law at the end of 2010 exempted nearly all estates from such taxes as well as allowing spouses to give their exemptions to the other that survives them when it might otherwise be wasted, the Washington State estate tax is levied on much more modest estates. In simple terms, the IRS does not tax an estate less than $5 million, or $10 million if it is the combined estate of a married couple. This very generic description of the federal rules may not apply to all situations and will also expire at the end of 2012 unless another law is passed, I have provided a more complete description of the current estate tax scheme here. Washington State is not nearly as kind in its taxation of estates, particularly for married couples. The Washington State exemption is only $2 million, and if proper estate planning techniques are not utilized before and after a spouse’s death, then the total exemption for all of a married couples combined assets is only $2 million (the first spouse’s exemption is wasted).  I have provided below a chart showing the current Washington State estate tax rates. The “Washington taxable estate” is the total assets of the deceased person (probate as well as non-probate, which includes retirement accounts and property held in a Revocable Living Trust) less the amount given to a surviving spouse and less the $2 million Washington State exemption.

Tax Rate

For Washington taxable estate amount

10%

$0 – $999,999

14%

$1,000,000 – $1,999,999

15%

$2,000,000 – $2,999,999

16%

$3,000,000 – $3,999,999

17%

$4,000,000 – $5,999,999

18%

$6,000,000 – $6,999,999

18.5%

$7,000,000 – $8,999,999

19%

$9,000,000 +

For example, if a Washington resident has a $4.5 million dollar estate, they would pay no federal estate tax since there is a $5 million dollar exemption making their federal taxable estate $0, but the Washington State exemption is only $2 million, thus their Washington taxable estate is $2.5 million. The first million is taxed at 10%, the second million is taxed at 14% and the final $500,00 is taxed at 15% making for a total Washington State estate tax bill of $315,000.

 

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