Picture this: a retired couple in their early 60s moved from California to Oregon with about $6 million in assets, and they bought a small cabin in Washington, too. They thought they were in the clear financially and legally, and they had taken all the “right” estate planning steps by setting up a trust and writing a will.
But, then they sat down to forecast their tax exposure and quickly realized that they might need to anticipate a six-figure tax bill. The surprise is understandable. California has high income taxes, but it does not currently impose a separate state estate tax. Oregon and Washington do. Simply having a trust or a will does not eliminate that tax.
For families living in Oregon or Washington, especially those who own real estate or businesses in both states, understanding the estate tax rules is an essential part of protecting what they have built.
Here is what changed, what stayed the same, and what it may mean for your family in 2026.
What is Estate Tax?
Estate tax is a one-time tax on assets that occurs when the owner dies. The tax is generally based on the fair market value of the assets owned at death, not what you originally paid for them.
For example, suppose you purchased a Washington cabin for $100,000 in 1990. If the cabin is worth $1 million when you die, the estate tax calculation includes the $1 million date of death value, not the original value at purchase.
However, each state provides an exclusion amount (the exemption amount). That is the amount that may pass to loved ones before state estate tax is imposed. This also determines if an estate meets the filing threshold and must file an estate tax return.
Washington’s 2026 Tax Changes
Washington’s estate tax has seen significant changes over the last two years. Before 2025, the exemption amount for estates was roughly $2.2 million with no inflation adjustment and a maximum tax rate of 20%; on July 1st, 2025, the exemption raised to $3.076 million, adjusted annually for inflation, with a maximum tax rate of 35%. On July 1st, 2026, the exemption for Washington changed again, decreasing slightly to a flat $3 million, with no future inflation adjustment. The maximum tax rate also adjusted down from 35% to 20%. This means that tax rates are drastically different for a person who died between July 1, 2025 and June 30, 2026, than a person who dies after July 1, 2026.
Because Washington’s estate tax laws changed more than once within a short period, families should confirm which exemption and rate schedule applies to the relevant date of death.
| Taxable Estate Bracket | Estate Tax, July 1st 2025 – June 30th 2026 | Estate Tax, Effective July 1st 2026 |
|---|---|---|
| $0 – $1 million | 10% of taxable amount | 10% of taxable amount |
| $1 million – $2 million | $100,000 + 15% over $1M | $100,000 + 14% over $1M |
| $2 million – $3 million | $250,000 + 17% over $2M | $240,000 + 15% over $2M |
| $3 million – $4 million | $420,000 + 19% over $3M | $390,000 + 16% over $3M |
| $4 million – $6 million | $610,000 + 23% over $4M | $550,000 + 18% over $4M |
| $6 million – $7 million | $1,070,000 + 26% over $6M | $910,000 + 19% over $6M |
| $7 million – $9 million | $1,330,000 + 30% over $7M | $1,100,000 + 19.5% over $7M |
| $9 million and up | $1,930,000 + 35% over $9M | $1,490,000 + 20% over $9M |
There is limited filing relief for married couples and registered domestic partners who own their personal residence. When the requirements are satisfied, the deceased spouse’s share of the couple’s personal residence may be removed from the gross estate calculation solely to determine whether an estate tax return must be filed. However, it does not automatically eliminate the residence from the taxable estate. If the value of the remaining estate already meets the filing threshold, a return may still be required, and the residence may still be included in the estate tax calculation. This provision can be extremely helpful for families whose wealth is concentrated in their home. However, it should not be viewed as a general exemption from Washington estate tax.
Other Washington Tax Changes
- Capital gains tax: After the available statutory deduction the first $1 million Washington capital gains is taxed at 7 percent. Gains exceeding $1 million are subject to a total rate of 9.9 percent. Other exemptions and deductions may also be available, including provisions involving real property, family owned businesses, retirement accounts, and charitable contributions.
- The “millionaire’s tax”: Beginning January 1, 2028, Washington will impose a 9.9% tax on annual taxable income over $1 million. It generally applies to worldwide income for Washington residents and Washington-sourced income for nonresidents. The tax may be especially significant for business owners because pass-through income can be taxable even when the business retains the cash rather than distributing it.
Why Washington’s New Exemption May Affect Existing Trust Plans
A common estate tax planning strategy for married couples is to divide assets into two trusts when the first spouse dies.
One trust, often called a Bypass Trust, Credit Shelter Trust, or Exemption Trust, is designed to use the deceased spouse’s available estate tax exemption. The other trust, commonly called a Marital Trust or QTIP Trust, is designed to qualify for the marital deduction and defer estate tax until the surviving spouse dies.
These trusts are irrevocable after the first spouse’s death. They can provide for the surviving spouse while also allowing the first spouse to control where the remaining assets ultimately pass.
When this type of plan was created, it may have assumed that the couple’s estate would exceed Washington’s estate tax exemption when the first spouse died. Under that assumption, the estate would already be required to file a Washington estate tax return, and the personal representative could make the QTIP election needed to claim the marital deduction.
Washington’s increased estate tax exemption may change that result.
If the first spouse’s estate is now below the Washington filing threshold, a Washington estate tax return is not required. However, if the estate plan directs assets into a QTIP Trust and relies on the marital deduction, the estate must still file a Washington estate tax return to make the QTIP election.
Without the election, the assets passing to the QTIP Trust may not qualify for the intended marital deduction. As a result, the trust funding formula and tax planning provisions may not operate as the couple originally expected.
We recently saw this issue arise for a Washington family. Their estate plan had been prepared with the expectation that the estate would exceed Washington’s exemption and that an estate tax return would be required when the first spouse died. By the time the death occurred, the exemption had increased, and the estate fell below the filing threshold.
Although the estate was not otherwise required to file a Washington estate tax return, the plan relied on a QTIP election. The estate therefore had to file a return solely to make that election and preserve the intended marital deduction.
This does not necessarily mean the original plan was poorly designed. Rather, the law changed, and a strategy developed under prior tax laws may no longer produce the intended result.
If your estate plan contains a QTIP Trust, Marital Trust, Bypass Trust, Credit Shelter Trust, Family Trust, or Exemption Trust, it should be reviewed under Washington’s current estate tax laws. The structure may still be appropriate, but the trust funding provisions, filing requirements, and tax elections should be evaluated to ensure the plan will work as intended.
Oregon’s Estate Tax: The Quiet Problem
Oregon’s exemption has not changed in over a decade and remains only at $1 million. The exemption has not kept pace with inflation or the growth in home values. As a result, estate tax planning is no longer limited to families who consider themselves wealthy.
A home, retirement accounts, life insurance, savings, and a modest investment portfolio can quickly push an Oregon estate over the filing threshold. Teachers, government employees, business owners, contractors, and other middle class families are frequently surprised to learn that their estates may face Oregon estate tax.
Oregon estate tax rates begin at 10 percent and rise to a maximum of 16 percent.
| Taxable Estate Bracket | Estate Tax |
|---|---|
| $1 million – $1.5 million | 10.0% of amount over $1 million |
| $1.5 million – $2.5 million | $50,000 + 10.25% over $1.5 million |
| $2.5 million – $3.5 million | $152,500 + 10.5% over $2.5 million |
| $3.5 million – $4.5 million | $257,500 + 11.0% over $3.5 million |
| $4.5 million – $5.5 million | $367,500 + 11.5% over $4.5 million |
| $5.5 million – $6.5 million | $482,500 + 12.0% over $5.5 million |
| $6.5 million – $7.5 million | $602,500 + 13.0% over $6.5 million |
| $7.5 million – $8.5 million | $732,500 + 14.0% over $7.5 million |
| $8.5 million – $9.5 million | $872,500 + 15.0% over $8.5 million |
| $9.5 million and up | $1,022,500 + 16.0% over $9.5 million |
For married couples, estate tax is often avoided when the first spouse dies because assets passing to the surviving spouse may qualify for the marital deduction. However, that does not mean the tax problem has disappeared. Without proper planning, the first spouse’s $1 million Oregon estate tax exemption may be lost. The surviving spouse may then own the couple’s entire combined estate but have only one $1 million exemption available at the survivor’s death.
In other words, married couples may lose an important opportunity to protect more of their assets from Oregon estate tax if they do not plan before the first spouse dies. That is why couples should review their estate plan now, while both spouses are living and more planning options remain available.
Multi-State Ownership and Residency
Multi-state home ownership creates another layer of complexity. Suppose an Oregon resident owns a vacation home in Washington. The estate may need to analyze estate tax filing obligations in both states. Both states begin by looking at the value of the decedent’s broader estate to determine whether a filing requirement or tax may apply. The state then uses residency, the character of the property, and apportionment rules to determine what portion may actually be taxed. Owning property in two states does not necessarily mean the same property will be fully taxed twice. It does mean the estate may face two filing systems, two sets of deadlines, and a more complicated tax calculation.
With proper planning, it may be possible to reduce these complications and, in some cases, limit estate tax exposure in two states through ownership structures, entity planning, or other strategies tailored to the property and the family’s goals.
The Best Time to Review Your Plan Is Before the Tax Is Due
Tax laws change. Asset values change. Families move between Oregon and Washington. Businesses grow. Homes appreciate. Estate plans that worked five years ago may no longer produce the intended result.
The families who come out ahead are usually the ones who review their exposure before a death or incapacity forces everyone to react.
At Caress Law, P.C., we help Oregon and Washington families understand how estate tax, property ownership, trusts, and family circumstances work together. Our goal is not simply to prepare documents. It is to create a plan that protects your family, minimizes unnecessary taxes, and works when your loved ones need it most.
Contact Caress Law, P.C. to schedule an estate planning consultation and determine whether your current plan still works as intended under today’s laws. Give us a call at (503) 292-8990 or fill out the form below.
