Planning for the 35% Washington State Estate Tax

Washington state levies an estate tax of up to 35% on estates of decedents dying on or after July 1 2025. That new rate is by far the highest estate tax rate in the country. And a substantial bump from the prior top estate tax rate, 20%.

Thus, if you or someone in your family may pay Washington state estate taxes? Especially that top 35% rate? You want to understand how the estate tax works. And what steps you may be able to take to minimize the burden.

To help with this thinking, this long-ish blog post. It explains how the new higher-tax-rates Washington state estate tax formula works. And it points out the handful of tax planning gambits affected taxpayers will want to consider.

Basic Washington State Estate Tax Formula

Let’s start by reviewing the basic formula. Washington taxes estates using the following formula for decedents dying July 1, 2025 or later:

Estates up to $3,000,000 pay zero estate tax due to an exclusion amount. (State law adjusts this exclusion amount for inflation after 2025. But for purposes of this discussion, we’re mostly going to ignore the adjustment. That ignorance makes the math easier.)

Estates between $3,000,000 and $12,000,000 pay a graduated tax that starts at 10% but then steadily marches up to the top 35% tax rate. A $12,000,000 estate created between July 1 and December 31 of 2025, for example, pays $1,930,000 in estate taxes. But the table below summarizes the actual tax brackets.

Estates greater than $12,000,000 pay $1,930,000 in estate taxes plus 35% of the amount by which the estate exceeds $12,000,000.

Example 1: A Washington resident dies with a total estate of $22,000,000 in late 2025. His estate pays no estate taxes on the first $3,000,000 of value due to the exclusion amount. The estate pays $1,930,000 on the next $9,000,000 of value. And the estate pays $3,500,000 on the last $10,000,000 of value. In total, then, the estate pays $5,430,000 in estate taxes.

Washington State Estate Tax Formula “Standard Deductions”

In most cases, deductions reduce the size of the taxable estate.

Perhaps most important, most spousal transfers don’t get taxed.

Example 2: A married taxpayer dies with an estate equal $22,000,000. The taxpayer’s will transfers $19,000,000 of that to his spouse. That spousal transfer probably reduces the estate value to $3,000,000. The $3,000,000 exclusion amount shelters that $3,000,000. Thus, the estate pays zero estate taxes.

Note: Credit shelter trusts, as your attorney can explain, often let married taxpayers in effect use the exclusion amount twice: $3,000,000 when the first spouse dies and another $3,000,000 when the second spouse dies. (In a guest blog post here, “Washington Estate Tax Tips Save Thousands” Redmond, WA attorney Raemi Gilkerson explains how these credit shelter trusts work.)

Charitable contributions also reduce the size of the taxable estate.

Estate administration costs (attorneys, accountants, appraisers and so forth) also get deducted from the gross estate to determine the taxable estate.

Qualified Family-owned Business Interest Deduction

In a tiny handful of situations, an estate may deduct the value of a qualified family-owned business interest in a small business to shelter up to roughly $3,000,000 of the estate. (Getting this deduction to work is tricky as described here, “Qualified Family-owned Business Interest Deduction: Updated for 2025.” But families and professionals want to at least investigate the deduction if they think it applies.)

Example 3: A taxpayer leaves a $12,000,000 estate. The estate spends $100,000 on administration costs and makes a $2,900,000 charitable contribution to a Seattle hospital. That leaves $9,000,000 in the estate. A qualified family-owned business interest worth $6,000,000 would, accordingly to a very complicated formula, potentially create a qualified family-owned business interest deduction equal to $3,000,000. The regular exclusion amount shelters $3,000,000. That leaves a taxable estate of $3,000,000 on which the estate pays $420,000.

Out of State Adjustments

If a taxpayer owns out-of-state real estate or tangible personal property, that property reduces the Washington state estate taxes on a pro rata basis. If half a Washington resident’s estate consists of out-of-state tangible property, for example, the Washington state estate tax formula halves the estate taxes owed.

Example 4: A taxpayer dies with a $22,000,000 estate in late 2025. As example 1 shows, if the taxpayer’s property all sits in Washington state, the estate pays a $5,430,000 estate tax. But if the estate includes a $6,000,000 home in Palm Springs (so out-of-state real estate) and $5,000,000 of gold stored in a Los Angeles bank vault (so out-of-state tangible property), $11,000,000, or 50 percent, of the taxpayer’s $22,000,000 estate is “out of state.” In this case, then, the estate reduces the $5,430,000 estate tax by 50 percent, so from $5,430,000 to $2,715,000.

Some Washington Estate Tax Planning Concepts

Start kicking around the concepts described in the preceding paragraphs and you can (surely with your attorney’s help) spot a handful of techniques to reduce your estate taxes. But let me point out the obvious ideas.

Relocate Out of State

The first obvious gambit for anyone facing a large Washington state estate tax liability? Relocate to just about any other state. A no-income-tax state like Nevada, Florida or Texas maybe works best. But any other low-income-state western state like Arizona, Idaho, Montana or Utah works well too.  Washington’s top 35% estate tax is by far the highest in the nation. And most other western states (Oregon excepted) levy no estate tax.

Note: Relocating subjects you to a new state’s income taxes, if any. But even with high income tax states (like California), paying income taxes over decades may often cost less than paying estate taxes.

A caution: If you move out of state but keep a home in Washington state, your estate applies the same pro rata formula described in example 4 with the difference that your intangible property gets “sourced” to your new state.

Example 5: A taxpayer with a $22,000,000 estate knows that without any tax planning, his estate will owe $5,430,000 of estate taxes. Thus, he terminates his Washington state domicile, relocates to Austin, Texas, and clearly establishes his new domicile there. He keeps his Washington state home, however, valued at $2,200,000. That means he still holds 10 percent of his estate inside Washington and so will need to pay 10 percent of $5,430,000, or $543,000, in Washington state estate taxes.

Gift Either to Heirs or Charities

Washington state levies no gift tax. Thus, a taxpayer can save her or his estate from paying state estate taxes by gifting large amounts to heirs pre-mortem. The only wrinkle here is that federal gift taxes paid within three years of the death get added back to the Washington taxable estate. ( Consult your tax advisor if that is potentially your situation.)

Charitable gifts to organized charities should also reduce the taxable estate.

Example 6: A single taxpayer with a $12,000,000 estate knows his estate will pay $1,930,000 in estate taxes if he dies without reducing the taxable estate’s size. Thus, he gives away $1,000,000 to each of two children while alive and makes a $1,000,000 testamentary charitable contribution. Those gifts reduce the estate from $12,000,000 to $9,000,000 and drop the estate tax from $1,930,000 to $1,070,000.

Move Assets Out of State

A taxpayer reduces her or his Washington taxable estate by purchasing real estate or holding tangible personal property out of state.

Example 7: Another single taxpayer with another $12,000,000 estate also knows her estate will pay $1,930,000 in estate taxes if she dies without reducing the estate’s size. She buys a $2,500,000 home in Palm Springs and moves $500,000 of artwork and collectibles from her Seattle home to her new Palm Springs home. If she later dies with not 100 percent but only 75 percent of her estate inside Washington state? She reduces her estate tax from $1,930,000 to 75 percent of $1,930,000, or $1,447,500.

Bigger Fish to Fry

One other gambit (or non-gambit?) to mention. Maybe you don’t worry about this Washington estate tax stuff. Or at least don’t worry about it very much. Don’t get me wrong. The new estate tax rates seem like terrible tax policy for a  bunch of reasons.

But what I’m thinking here: You living close to friends and family? Staying connected to the community network you’ve spent decades building? That stuff is pretty valuable. Probably more valuable than the estate tax most taxpayers will pay.

Thus, unless avoiding the Washington state estate tax makes a big difference to your heirs? You may have bigger fish to fry here. Seriously.

A Closing Technical Point about Inflation

As mentioned earlier, Washington state law adjusts the $3,000,000 exclusion amount and the up to $3,000,000 qualified family-owned business interest deduction amount for inflation. Thus, for estates of decedents who die in 2026 or later years? Inflation will surely push up these amounts. That $3,000,000 applicable in 2025 amount might grow to $3,100,000 in 2026 or 2027.

But a technical point: No inflation adjustment occurs for the dollar values in that table of estate tax rates and brackets. Washington state tax law ignores the effect of inflation for those amounts. That ignorance maybe doesn’t sound like a big deal. But if annual inflation runs 3-percent roughly, it steadily reduces the size of that band of lower rates that average 21 percent-ish. Thus, over time, more estates will pay that 35 percent tax rate on a portion of their estate’s value.

Want to Estimate Your Estate’s Tax?

If you want to experiment with your estate’s possible estate tax burden, you can use this calculator: Washington Estate Tax Calculator