Washington State Estate Tax and Who Pays It

Washington State's estate tax applies to estates worth more than $2.193 million as of 2024 — the threshold changes each year based on inflation. The tax rate is 10 to 20 percent of the amount above that threshold. If your estate falls below the threshold when you die, your heirs owe nothing to the state. If it exceeds the threshold, the executor must file a return with the Washington Department of Revenue and pay tax on the overage before distributing assets to beneficiaries.

The threshold applies to your total taxable estate: real property in Washington, bank accounts, investments, retirement accounts, life insurance proceeds, and other assets you own at death. Some assets pass outside your estate (like payable-on-death accounts or assets with named beneficiaries), and those may not count toward the threshold — but the rules are specific, and miscounting is common.

Federal estate tax is separate and applies only to much larger estates (the federal threshold is $13.61 million per person in 2024). This article focuses on Washington State tax only.

Key Takeaways

  • Washington State estate tax applies only to estates exceeding $2.193 million in 2024, so estates below that threshold owe no state tax regardless of structure.
  • Married couples can combine thresholds through portability or by holding assets jointly, potentially doubling the amount that passes tax-free.
  • Irrevocable trusts, life insurance trusts, and gifts during your lifetime can move assets outside your taxable estate before you die.
  • Payable-on-death accounts, transfer-on-death deeds, and named beneficiaries on retirement accounts bypass your estate and may not count toward the tax threshold.
  • A will or revocable living trust does not reduce estate tax — both are included in your taxable estate at death.

Using Portability to Double the Threshold for Married Couples

If you are married, you and your spouse each have a separate $2.193 million threshold (2024). That means a married couple can pass up to $4.386 million without owing Washington State estate tax — but only if the first spouse to die takes a specific step.

When the first spouse dies, the executor must file a federal estate tax return with the IRS (even if no federal tax is owed) and make an election called portability. This election preserves the unused threshold of the first spouse to die, allowing the surviving spouse to use it later. Without the election, the unused threshold is lost forever.

Portability is automatic for federal estate tax purposes in some cases, but Washington State does not automatically recognize it. You must file the federal return and make the election explicit. After portability is elected, the surviving spouse's estate can use both thresholds when they die. A tax attorney or CPA familiar with Washington estates should handle this filing, as mistakes cannot be corrected later.

Holding Assets Jointly or as Community Property

Washington is a community property state, which means assets acquired during marriage are owned equally by both spouses by law — even if only one spouse's name is on the title. When one spouse dies, their half of community property passes to the surviving spouse or to heirs, and the surviving spouse's half receives a step-up in basis, meaning its tax value resets to the fair market value at the date of death.

Joint tenancy (owning property with another person, typically a spouse) works differently. When a joint tenant dies, the property passes automatically to the surviving joint tenant outside the probate process. However, the entire value of jointly held property is included in the deceased owner's taxable estate unless the surviving owner can prove they contributed to the purchase price.

For married couples in Washington, holding assets as community property is often simpler than joint tenancy because the law presumes equal ownership. For unmarried co-owners or adult children, joint tenancy can create unintended tax consequences and should be reviewed with an attorney before using it as an estate planning tool.

Creating an Irrevocable Life Insurance Trust

Life insurance proceeds are included in your taxable estate at their full face value — a $1 million policy counts as $1 million toward the threshold. An irrevocable life insurance trust (ILIT) is a trust that owns the life insurance policy instead of you. When you die, the policy pays the trust, and the proceeds are not part of your taxable estate.

To use an ILIT, you must create the trust first, then transfer an existing policy to it or have the trust explore for a new policy. You cannot own the policy and then transfer it to the trust later — the transfer must happen before you die, and you must survive the transfer by at least three years for it to be excluded from your estate. If you die within three years, the proceeds are still included in your taxable estate.

An ILIT is irrevocable, meaning you cannot change it or take the policy back. The trustee (often a family member or professional) controls the policy and decides how to use the proceeds after your death. This loss of control is the trade-off for removing the insurance from your taxable estate. An ILIT is most useful if your estate is close to or above the threshold and life insurance is a significant part of your assets.

Making Gifts During Your Lifetime

Assets you give away during your lifetime are removed from your taxable estate. You can give up to $18,000 per person per year (2024) without filing any paperwork or using your lifetime gift tax exemption. If you give more than $18,000 to one person in a year, you must file a gift tax return with the IRS, though you typically owe no tax — the excess counts against your federal lifetime exemption instead.

Washington State has no gift tax, so gifts do not trigger state tax during your lifetime. However, gifts are still included in your federal taxable estate if you die within three years of making them in some cases, and the rules are complex. A common strategy for married couples is for each spouse to give $18,000 per year to each child or grandchild, removing $36,000 per recipient annually from their combined estate.

Gifts work best when made consistently over many years, starting early. A gift of $18,000 per year to each of three children removes $54,000 per year from your estate. Over ten years, that is $540,000 removed — potentially enough to drop your estate below the threshold. Gifts must be genuine (you cannot take them back), and the recipient must have real control over the money or property.

Using Payable-on-Death and Transfer-on-Death Accounts

A payable-on-death (POD) account is a bank or investment account where you name a beneficiary to receive the balance when you die. The account passes directly to that person outside your will or trust, and probate is avoided. Similarly, a transfer-on-death (TOD) deed lets you name a beneficiary to receive real property when you die.

These accounts and deeds are not included in your probate estate, but they may still be included in your taxable estate for Washington State estate tax purposes — the law is not entirely settled on this point. However, they do avoid probate costs and delays, which can be valuable even if they do not reduce estate tax. They are also simpler to set up than a trust and do not require you to give up control during your lifetime.

POD and TOD designations should be reviewed if you have a will or trust, because they override those documents. If you name a beneficiary on a POD account but your will says the money should go to someone else, the POD beneficiary receives the money. Keeping beneficiary designations consistent with your overall plan prevents confusion and unintended results.

Establishing a may have access to Personal Residence Trust

A may have access to personal residence trust (QPRT) is an irrevocable trust that holds your home. You transfer the house to the trust but retain the right to live in it for a set number of years (typically 5 to 15 years). After that period ends, the home passes to your beneficiaries (usually children). The value of the home included in your taxable estate is reduced because you have given up the right to live there eventually.

The reduction in taxable value depends on your age, the length of the trust term, and interest rates at the time the trust is created. A younger person or a longer trust term results in a larger reduction. If you die before the trust term ends, the entire home is included in your taxable estate, so this strategy only works if you expect to live past the end of the term.

A QPRT is complex and requires professional setup. It is most useful for people with valuable homes in high-appreciation areas who want to pass the home to children at a reduced tax cost. After the trust term ends, you can continue living in the home, but you must pay rent to the new owners — the rent is another way to move money out of your estate.

Reviewing Beneficiary Designations on Retirement Accounts

Retirement accounts like IRAs and 401(k)s pass to named beneficiaries outside your will or trust. The full account balance is included in your taxable estate, but it does not go through probate. If you have not named a beneficiary, the account goes to your estate, which can trigger both probate and estate tax on the full balance.

Naming a beneficiary is free and takes minutes, but many people forget to update designations after major life changes like marriage, divorce, or the birth of children. Old designations override your current will, so reviewing them regularly is important. If your estate is large and you want to reduce the amount passing to your taxable estate, you can name a trust as the beneficiary of a retirement account — but this requires careful drafting to avoid unintended tax consequences.

Beneficiary designations should be consistent with your overall estate plan. If you want all your assets to pass equally to your children, but your IRA names only one child, that child receives the full account balance outside the equal distribution. A tax professional can help coordinate beneficiary designations with your will or trust.

Frequently Asked Questions

Does a revocable living trust reduce Washington State estate tax?

No. A revocable living trust avoids probate and keeps your affairs private, but the trust assets are still included in your taxable estate at their full value. The trust is revocable, meaning you control it and can change it anytime, so the IRS and Washington State treat it as if you still own the assets. Only irrevocable trusts (like an ILIT or QPRT) can reduce your taxable estate.

Can I give my entire estate to charity to avoid estate tax?

Yes, charitable gifts are deductible from your taxable estate, so leaving money or property to a may have access to charity reduces the amount subject to tax. However, this only works if you are comfortable with the charity receiving the assets. A charitable remainder trust lets you receive income during your lifetime and leave the remainder to charity, combining both goals.

What happens if my estate is below the threshold when I die but was above it during my lifetime?

Estate tax is calculated based on the value of your assets when you die, not during your lifetime. If your estate has declined in value and falls below the threshold at death, no Washington State estate tax is owed. Market downturns, spending, or gifts made before death can all reduce your estate below the threshold.

Do I need to file a Washington State estate tax return if my estate is below the threshold?

No. If your taxable estate is below $2.193 million (2024), you do not file a Washington State estate tax return. Your executor should still keep documentation of the estate's value in case the IRS or state later questions it, but no return is required to the state.

Can I use both an ILIT and a QPRT in the same estate plan?

Yes. An ILIT removes life insurance from your taxable estate, and a QPRT removes your home (or reduces its value). Both can be used together if your estate includes both significant life insurance and valuable real property. A tax attorney can coordinate both trusts to work together as part of your overall plan.