In this episode of Navigating Estate Planning with Caress Law, host Tammi Caress discusses the significant tax changes on the horizon for Washington State residents. We are here to help you understand these changes and how these new estate tax and capital gains tax laws could impact your financial future and your family.
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Major Tax Changes Are Coming to Washington
There are significant tax changes on the horizon for Washington State residents. With Governor Ferguson signing the largest tax increase in Washington history into law, estate tax thresholds are shifting, and rates are rising. While changes might seem scary, this is nothing to stress about; we are here to help you understand these changes and how these new estate tax and capital gains tax laws could impact your financial future and your family.
Understanding the New Estate Tax Thresholds
For decedents dying on or after July 1, 2025, the estate tax threshold will rise from $2.193 million to $3 million, meaning fewer families will have to worry about filing an estate tax return. This threshold is also subject to annual adjustment for inflation. It is important to note that the $3 million threshold applies per person, not per family. So, if you’re married, with proper planning, each spouse can get their own $3 million tax threshold.
This is great news for those who are planning their estates. The right strategy can help reduce or even avoid estate taxes altogether.
Escalating Estate Tax Rates
Good news often comes with some challenges. While the new $3 million exemption is a win for taxpayers, there are other negative changes to consider. Starting in July 2025, Washington’s estate tax rates are rising. Currently, rates range from 10% to 20%, but now the maximum rate will jump to 35%. The increase will be gradual, meaning the larger the estate, the higher the rate.
However, there are still some deductions available. For example, if you own a family business or farm, you may qualify for a special deduction that could protect your estate from having to sell it off to meet your tax burden.
The bigger estates will face the most significant impact, but if you qualify for these deductions and plan properly, you can minimize these changes in your favor.
The New Capital Gains Tax Rate
Washington’s long-term capital gains tax will also experience some significant changes. Retroactive to January 1, 2025, Washington’s long-term capital gains tax is going up. Tax gains in excess of $1 million will now face an additional 2.9% tax, raising the tax rate to 9.9% instead of the previous 7% rate.
For many high-income earners, this higher tax bracket could have a big impact on your estate so it’s important your investment strategy and the new tax rates align.
Strategic Tax Planning
With these changes, proper planning will be more important than ever. For Washington residents, there are strategies you can use in your estate plan to help reduce the tax impact. If it’s been a while since you have reviewed your plan or if you haven’t made one yet, now is a great time to start. Contact our team by calling us at (503) 292-8990, or by filling out the form below.
