In Washington State (WA), there is no inheritance tax but it does have an estate tax. An estate tax is a tax on your right to transfer property at your death. Estate tax accounts for everything the deceased owns or has specific interests in on the date of their death. When someone dies, their property is valued at Fair Market Value (FMV), not always what they paid when they purchased the property. An estate may be valued much higher, a calculation determined by the state of WA, and create estate tax problems for heirs.
A person living in WA or a non-resident who inherits property in WA may owe estate tax depending on the estate's value. For this reason, understanding how WA estate taxes will impact you if you inherit or your heirs is essential. Here are some questions you may have about estate taxes in WA:
What is the WA estate exclusion amount?
If the death occurred in 2022, the applicable exclusion amount is $2,193,000. Once the exclusion amount is reached and all allowable deductions are taken, WA estate taxes compute using the following table:
Does WA State require an estate tax return?
Yes- If the gross value of all of the deceased's property, even outside of Washington, is over $2,193,000 (FMV without deductions) in 2022 and:
- They are a Washington resident or
- They are a non-resident but own real estate or personal property located in Washington on the date of their death.
No- If the estate's value is under the filing threshold of $2,193,000 an estate tax return does not need to be filed.
What property is included in the WA estate tax calculation?
Real estate, stocks, bonds, interest in business entities, cash, life insurance policies, vehicles, recreational vehicles, royalties, pension plans, assets held in trust, annuities, assets owned jointly with a spouse and with others, and everything the deceased owned is part of the estate for calculating WA estate tax.
Do Spouses Pay WA estate taxes?
No- The estate passes by default to the surviving spouse and is not subject to WA estate tax regardless of the estate's value.
What are some strategies to avoid WA estate taxes?
If you have assets that may exceed the WA estate tax exclusion amount, you have options:
- Do nothing- Your heirs will pay the estate taxes on their inheritance.
- Estate planning- Work with financial and legal professionals to determine if a trust, limited family partnership, Irrevocable Life Insurance Trust (ILIT), or other estate planning strategies are appropriate for your situation and goals. Estate planning can help minimize estate taxes and help your estate pass more easily to heirs.
- Gift to others- You can use your estate to benefit charities while living and reduce your taxes now, and the taxes your heirs may pay after your death. For 2022, the annual gift-tax exclusion is $16,000 for singles, and if you file jointly, $32,000 for married couples.
- Spend it- You can spend down your assets now so that your estate will be valued below the WA estate tax exclusion.
- Pay it- You can plan for estate taxes using various strategies as part of your estate plan.
- Move out of WA- Be aware that Oregon, Minnesota, Illinois, New York, Vermont, Massachusetts, Connecticut, Rhode Island, and Maine have estate taxes, and Nebraska, Iowa, Kentucky, Pennsylvania, and New Jersey have an inheritance tax. And, if you're considering moving to Maryland, it has estate and inheritance taxes!
Who should consider estate planning to help reduce WA estate taxes?
If you believe your assets are under the WA estate tax exclusion amount now, that doesn't mean your estate will be excluded in the future. You may have ten, fifteen, or twenty more working years ahead of you to accumulate more assets, and your current assets will continue to accumulate value over time. Estate planning is essential for many people and especially their heirs, if they don't want them to have to pay estate taxes when they die. Some strategies can help reduce your taxes now and the estate taxes your heirs may be required to pay later.
Sources:
https://dor.wa.gov/taxes-rates/other-taxes/estate-tax/estate-tax-faq
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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