Estate Taxes Generally
An estate tax is a tax imposed on the transfer of the “taxable estate” of a deceased person, whether such property is transferred via a Last Will and Testament, Revocable Living Trust, other Will substitutes, or according to the state laws of intestacy.
Federal and state estate tax may be due on your estate if your gross estate is greater than the federal or state thresholds. The gross estate is the current market value of property you own including: cash and securities, real estate, trusts, insurance, annuities, retirement accounts business interests, and tangible personal property. The estate tax due is calculated based on the taxable estate which is the gross estate minus specified deductions such as debts on estate property and property transferred to a surviving spouse or qualified charity.
At both the federal and state level, there is an unlimited marital deduction to surviving spouses inheriting from the decedent spouse. Thus, any assets passing to the surviving spouse will pass estate tax free.
A. Federal Estate Taxes
The federal estate tax threshold amount for year 2026 is $15.0 million. Thus, at your death you are allowed to pass on $15.0 million estate tax free at the federal level. This amount is indexed for inflation for every year after 2026. The federal estate tax has a progressive rate structure where the first one million dollars of a taxable estate is taxed at rates ranging from 18% to 39%. Every dollar after the first $1.0 million subject to the estate tax is taxed at a flat rate of 40%.
For married couples, the surviving spouse can make a “portability” election, under which, if an election is made, the surviving spouse’s exemption amount is increased by the deceased spouse’s unused exemption amount. This will effectively allow married couples to currently pass $30.0 million on to their heirs free from federal estate taxes with absolutely no planning at all.
B. State of Washington Estate Taxes
The State of Washington estate tax threshold amount for year 2026 and thereafter is $3.0 million. Thus, at your death you are allowed to pass on $3.0 million estate tax free at the State of Washington level. This amount is not indexed for inflation. The tax rate is a graduated rate beginning at 10% and increasing to a maximum of 20%.
A Washington State Estate Tax Return must be filed and estate tax may be due if the gross estate is greater than $3.0 million. Thus, it is important for those individuals or married couples whose estate is near or over $3.0 million to review their estate plan. Assets such as retirement accounts and life insurance death-benefit proceeds are included when valuing a person’s estate for estate tax purposes.