Co-author: Ryan Montgomery, Partner – Montgomery Purdue PLLC
Under current law, the state estate tax applies to the taxable estates at an initial rate of 10%, which grows incrementally as the size of the estate increases. The current maximum rate of 20% applies once the Washington Taxable Estate (generally, the value of assets in excess of the Washington state estate tax exemption, currently $2.193 million) reaches $9,000,000. Under proposed House Bill 1795, rates would remain unchanged for Washington Taxable Estates with a value of $3,000,000 or less, but Washington Taxable Estates between $3,000,000 and $4,000,000 would be subject to a maximum rate of 18% (instead of the current 16%), and Washington Taxable Estates in excess of $4,000,000 would all be subject to rates higher than the current 20% maximum, with a top rate of 40% applicable to Washington Taxable Estates in excess of $1 billion. The complete rate change proposal is reproduced below:
|If Washington Taxable||The amount of Tax Equals||Of Washington Taxable Estate Value Greater than|
|Estate is at least||But Less Than||Initial Tax Amount||Plus Tax Rate %|
As discussed in another recent post, House Bill 1484 was also recently introduced. If adopted, that bill would change the Washington state estate tax exemption amount from $2.193 million to $2.659 million in August 2023. Like House Bill 1484, the bill discussed here also incorporates those changes to the exemption amount.
In addition, the bill discussed here limits the availability of estate tax deductions under Section 2055 of the Internal Revenue Code for transfers to family foundations. If a charitable deduction is permitted under Section 2055 of the Internal Revenue Code for a transfer to a family foundation for federal estate tax purposes, only a portion of the deduction will be permitted for Washington estate tax purposes: 25% of the first $100,000,000 may be deducted and 75% of any amount in excess of $100,000,000. For example, if your allowable charitable deduction under Section 2055 for a transfer to a family foundation is $200,000,000, then you may only deduct $100,000,000 for Washington state estate tax purposes ($25,000,000 of the first $100,000,000 plus $75,000,000 of the amount in excess of $100,000,000). Further, the bill generally caps a possible deduction for the value of a decedent’s interest in a qualified family-owned business interest to $2.5 million.
House Bill 1795 also introduces a new rule where state estate tax returns are not required to be filed if the estate is not subject to estate taxes and the value of the decedent’s gross estate does not exceed the applicable exclusion amount when the value of the decedent’s interest in a qualifying residence is excluded. A “qualifying residence” generally means a residence that is a married couple’s principal place of residence, meaning they live there more than 6 months of the year. This change could mean many estates would not be required to file a state estate tax return at the death of the first spouse.
House Bill 1795 has not been adopted. If adopted in its current form, it would take effect on August 1, 2023.
If you have any questions about Washington state estate taxes, please reach out to our estate planning attorneys including Ryan Montgomery, Kara Novak, Kaitlyn K. Perez, Allison Int-Hout, and Matthew Hart.