Estate taxes catch many families by surprise
Washington has no state income tax, a fact that lulls many residents into thinking the government won’t touch their money after they die. It will.
The state imposes one of the most aggressive estate taxes in the country, and the rules changed again this summer. The threshold for taxation is now fixed at $3 million, while the assets it covers—homes, retirement accounts, life insurance—continue to rise in value.
What counts toward the tax—and what surprises people
The state doesn’t just tally cash in bank accounts. It includes the value of a home, even if the mortgage is paid off. Retirement accounts like IRAs and 401(k)s are also counted, along with brokerage accounts and life insurance death benefits, a detail most people overlook.
A couple in Spokane who own a $650,000 home outright, hold $2.5 million across their retirement and investment accounts, and carry life insurance for their family can exceed the $3 million limit without ever considering themselves wealthy. Their $3.15 million total already surpasses the state’s threshold.
Retirement accounts face additional complications. The balance is included in Washington’s estate tax calculation, and heirs must also pay federal income tax when they withdraw the funds.
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Another issue arises with spousal exemptions. At the federal level, when one spouse dies, the surviving partner inherits any unused exemption. Washington doesn’t allow this. Without proper planning, the first spouse’s exemption disappears, leaving more of the estate exposed when the second spouse passes. Many couples mistakenly assume they have two exemptions when they only have one.
The summer change that sounds like relief—but isn’t
For deaths occurring on or after July 1, lawmakers reduced the top estate tax rate to 20%, down from 35%. While this benefits larger estates, the exemption was simultaneously reset to $3 million and frozen, with no future inflation adjustments.
The freeze explains why conflicting numbers may appear. For deaths before July 1, 2026, the exemption was $3,076,000, adjusted for inflation. After that date, it dropped to a flat $3 million and stopped increasing. The relevant figure is now $3 million, and because it no longer keeps pace with inflation, the same assets inch closer to the threshold each year.
Estate planners recognize this pattern. When the federal exemption was set to drop in 2013, families hurried to adjust trusts and make gifts. The difference here is that Washington’s freeze is permanent unless lawmakers intervene. The threshold remains static while asset values rise.
How families can plan around the tax
Families aren’t without options, but they require advance planning. No strategy can be implemented after the fact.
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A credit shelter trust allows married couples to preserve both exemptions despite the lack of portability. Many attorneys include this provision in wills or living trusts. An irrevocable life insurance trust can remove a policy’s death benefit from the estate.
The most appealing strategies for clients are often the simplest. One is gifting assets during their lifetime, allowing them to see their heirs benefit. Another is charitable giving. Retirees 70½ or older can make qualified charitable distributions directly from an IRA to a nonprofit, reducing taxable income now and lowering the balance subject to future income tax.
Time is the key factor. If a home, retirement accounts, and other assets might eventually exceed $3 million, consulting a fiduciary adviser and an estate attorney while action is still possible makes sense. The fixed threshold won’t change, but estates will continue to grow into it.
For those concerned about long-term financial security, exploring economic policies that support fair wealth distribution may also provide useful context.
