Although Washington does not have a direct inheritance tax, it is vital for potential heirs and estate executors to understand the estate tax framework, since innumerable valuable estates are affected by Washington's tax system.
Consequently, we explain in this article the essential elements of the state's estate tax laws, itemizing, in as clear a structure as possible, the thresholds, calculations, and exemptions. In addition, we engage with a significant complicating factor—the interaction between Washington's law and federal law.
This engagement is especially relevant given that some Washington estates—though they pay no inheritance tax—may be subject to federal estate tax.
Understanding the Distinction Between Estate Tax and Inheritance Tax
The estate tax is a tax on the estate of a deceased person. In Washington, the estate tax applies only to Washington residents and to nonresidents with tangible property in the state. Tangible property includes real estate, vehicles, and physical items.
The estate tax in Washington does not affect the vast majority of citizens as it applies only to estates with a gross value that exceeds a specific threshold.
If the estate's gross value exceeds that threshold, then the estate must file a return, even if ultimately no tax is due. This practice largely ensures regulatory compliance, and the filing provides necessary documentation for potential audits or probate proceedings.
Why Washington Does Not Impose an Inheritance Tax
In Washington State, when individuals receive property from a deceased person's estate, the state does not impose tax on those individuals. Beneficiaries of an estate are not personally liable to pay tax on what they inherit.
But beneficiaries need to keep in mind that the estate itself may have taxes it needs to pay before the assets can be distributed. In essence, the overall value of what beneficiaries receive might be lower than they expect because the estate may have some sizable tax obligations to meet before it can get down to the business of distribution.
Residents here also need to understand that this is not a federal law or a rule that applies to all states.
Yes, some states, like Pennsylvania, impose an inheritance tax. If you inherit property from a Virginia resident, you might be taxed on that inheritance under Virginia law, even though Washington State has no such tax.
Federal Inheritance and Estate Tax Considerations
No inheritance tax exists at the federal level. However, a federal estate tax that may impact large estates does exist. In 2025, the federal estate tax exemption is $13.99 million per individual. Any estate that goes over that amount may face a maximum tax rate of 40%.
The exemption is portable between spouses, meaning that with adequate estate planning, a married couple can keep a maxed-out exemption of $27.98 million, in effect, from having their estate get taxed.
Washington, however, does not allow its state-level estate tax exemption to be portable, which directly affects surviving spouses.
Washington State Estate Tax Exemption and Rates
In 2025, an estate tax applies to estates exceeding $2.193 million in value. This amount, like all revenue-raising provisions in I-1185, is adjusted for inflation going forward. The estate tax is imposed only on the value of an estate above the exemption amount.
That is to say, if your estate is worth $2.193 million or less when you pass on, it does not owe estate tax at all. If your estate is worth $3 million or $4 million or whatever, it still only pays tax on the value above $2.193 million. Excepting property that is to be divided and shared, which is a big exception, all property in an estate is valued.
Then, the total value of the estate is compared to the exemption. If the estate is found by the tax authority to be below the exemption, it owes nothing. If it is found to be above the exemption, it does not escape because it is above the exemption. There are no deductions except for the big one above.
This estate tax, like the federal estate tax and the Washington net income tax, is a progressive tax, owing more the more you have.
Progressive Structure of Washington Estate Tax Rates
Washington's estate tax is progressive. This means that the tax rate increases with the size of the taxable estate. Marginal tax rates range from 10% to 20%, with different base amounts and thresholds that determine total liability.
For example, an estate valued at $5 million would pay estate tax only on the amount above $2.193 million. The calculation would involve applying the marginal tax rate to the portion of the estate that exceeds the lower threshold of the tax bracket. Then a fixed base amount would be added to reach the total tax due.
Calculating estate taxes can be complicated, especially when many different kinds of assets are involved. For this reason, it's recommended that you work with estate tax counsel or a certified public accountant (CPA) who understands Washington tax law. They can help you figure out just how much the tax man is going to want, and make sure you stay out of trouble while doing it.
Sample Estate Tax Calculation in Washington
Think about an estate with a value of $7 million. When you take away the exemption of $2.193 million, that leaves an estate that is taxable at $4.807 million. If you use the rate table to tax that amount:
- The estate is valued between $4M and $6M.
- The tax base for this bracket is $550,000.
- The sum exceeding $4M is $807,000.
- The rate on the margin is 18 percent, so 807,000 times 0.18 equals 145,260.
- The total tax owed is $695,260. This consists of $550,000 in one type of tax and $145,260 in another.
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This system is structured so that only the part above each threshold is taxed at a higher rate. But without careful calculation and planning, beneficiaries can end up with much lower distributions because estate tax obligations have decimated the amount that can be passed on.
Gift Tax and Lifetime Transfer Considerations in Washington
Individuals can make lifetime transfers of property without incurring state-level tax consequences. Washington does not impose a separate gift tax. However, such gifts may have federal implications, depending on their size and the relationship between the donor and recipient.
In 2025, people can give gifts of up to $19,000 to each person every year, and they don't have to tell the federal government about it. If you give more than that, you have to count it against your lifetime gift and estate exemption—that's the up to $13.99 million you're allowed to give away without paying federal taxes on it.
Lifetime gifting is often recommended by estate planners as a strategy to reduce the value of an estate and minimize estate tax liability. Such moves may, however, have unintended consequences, especially when it comes to basis adjustments (which affect capital gains taxes) and Medicaid eligibility.
Interaction with the Federal Gift Tax
Even though there is no gift tax in Washington, federal rules still apply. When the cumulative value of taxable gifts exceeds the federal lifetime exemption, estate or gift tax may be imposed at the federal level. Attorneys must keep a close watch on cumulative gift activity over a client's lifetime to determine if any part of the federal exemption has been used. Once the exemption is used, we know the federal estate tax may apply.
Ensure compliance by maintaining documentation of gifts—especially those involving real estate, business interests, or high-value personal property. Appraising large gifts is also advisable; such appraisals substantiate fair market value.
Gift-splitting strategies, irrevocable gift trusts, and other legal mechanisms can help clients considering high-value gifts distribute their wealth without going over the taxable threshold. Even with these tools, however, staying under the threshold can be tricky when distributing wealth in the form of gifts.
Use of Lifetime Gifting in Estate Reduction Strategies
Numerous individuals of significant wealth make use of lifetime gifting, within the context of a larger estate tax minimization strategy. When done correctly, such gifts can transfer not only current assets but also future appreciation out of the taxable estate. Meanwhile, the wealthy individual can pair such gifts with some family income tax planning, should the heir be in a lower income tax bracket than the donor.
This is all a part of the broader estate tax minimization strategy that high-net-worth individuals employ. Properly structured, gifts can shift appreciation out of the estate, reduce estate tax exposure, and provide financial support to heirs during the donor’s lifetime.
Common vehicles for asset protection and transfer during and after life include these:
1. Irrevocable Life Insurance Trusts (ILITs)
2. Grantor Retained Annuity Trusts (GRATs)
3.Family Limited Partnerships (FLPs)
Each has specific advantages and must meet legal requirements (e.g., formal documentation, appraisals, and compliance with IRS rules).
It is essential to ensure these transfers do not unwittingly boost overall tax payments or set off federal alarms. That means coordinating legal and financial know-how.
Federal Estate Tax Exemption and Portability
The federal estate tax works independently of Washington's state estate tax. For 2025, the federal exemption is $13.99 million per individual. If appropriate filings are made, married couples can combine exemptions up to $27.98 million.
To preserve for the surviving spouse the benefit of any unused exemption, the couple must file IRS Form 706 within nine months of the first spouse's death. They must undertake this step whether the estate is large, small, or in between.
Not filing the portability election can expose the surviving spouse's estate to significant federal estate taxes when the second spouse dies, even when the first spouse's estate was exempt from taxes.
Federal Estate Tax Rates and Brackets
The federal estate tax is a progressive tax with rates that range from 18% to 40%. It taxes large estates, but only the portion of the estate that exceeds the exemption amount.
In contrast to Washington, which lets a considerably smaller part of the estate go without taxation and imposes state tax much more frequently, the federal estate tax applies only to the very largest estates. However, when you combine the federal estate tax with the state estate tax, the two can hit high-value, real estate-rich, business-holding, or investment portfolio estates quite hard.
Client preparation should be undertaken by legal and financial advisors to ease the administrative load of federal and state estate tax return filing. This includes the following:
- Ensuring asset valuations are accurate and appropriately documented.
- Guaranteeing deductions are well-documented.
- Educating clients about the possibility of estate tax return audits by the IRS.
Coordination Between State and Federal Tax Planning
Professionals who plan estates must align not just federal but also state tax strategies. Although Washington's exemption is lower and thus applies more broadly, federal tax can impose additional liability on ultra-high-net-worth individuals.
Strategies like charitable remainder trusts, dynasty trusts, and spousal lifetime access trusts (SLATs) are commonly employed to fine-tune the outcomes of both federal and state estate planning. These instruments must be carefully drafted, executed, and funded in accordance with IRS and state directives.
All must be aligned to provide the intended benefits and to withstand regulatory scrutiny.
1. Documentation must provide a clear and logical explanation of what the trust is doing, who is benefiting, and how.
2. The right people (trustees) must be in the right roles and must be clear about their authority and responsibilities.
3. The trust must not be a secret, and it must be clear that it is operating pursuant to an approved plan.
4. There must be no confusion or appearance of confusion about the trust's tax status.
FAQs
Is inheritance received by residents taxed by Washington?
No. Washington does not have a direct inheritance tax. Estate tax is assessed before distribution to heirs.
In Washington, can a surviving spouse claim two exemptions?
No. The estate tax exemption in Washington is not transferable. Spouses who outlive their partners cannot combine the used and unused portions of their partners' exemption.
Is property in other states subject to the estate tax in Washington?
Nay. The state estate tax applies only to property that is either physically located in Washington or owned by a Washington resident and consists of intangible property.
Is the taxable estate inclusive of life insurance payments?
Affirmative. Generally, life insurance proceeds are counted in the gross estate unless the policy is maintained in an irrevocable life insurance trust.
What is the deadline for filing an estate tax return in Washington?
Returns for estate taxes must be submitted within a nine-month window that begins with the death of the decedent. An extension of six months may be granted upon request.
