Washington State Enacts Major Estate Tax Overhaul

For the first time since 2018, Washington State has enacted tax reforms that impact the Washington Estate Tax.  Senate Bill 5813, the contents of which were adopted when Governor Ferguson signed lawmakers’ two-year operating budget this week, will affect the taxation of Washington estates for those passing away on or after July 1, 2025.  Here is what you need to know: 

Raising the Estate Tax Exclusion 

One of the most impactful changes is an increase in the estate tax exclusion amount. Starting July 1, 2025, estates valued below $3 million will no longer be subject to the Washington estate tax, up from the previous exclusion threshold of $2.193 million.  An estate tax exclusion is the amount of a person’s estate that is exempt from estate taxes, meaning only the value above that threshold is subject to taxation.  There is both a federal exclusion and state exclusion.  This change is the first increase to Washington’s exclusion since 2018. 

In addition, beginning in 2026, the Washington estate tax exclusion amount will be adjusted annually for inflation using the Consumer Price Index (CPI) using an index for the Seattle metropolitan area, helping maintain its relevance over time.  This move is a first for Washington and aligns with the Federal government’s practice at this time.  We will now see an annual increase to Washington’s estate tax exclusion.  

New Progressive Tax Rates for Larger Estates 

While the higher exclusion may reduce the number of estates subject to Washington estate taxes, those that still qualify will soon face higher tax rates. 

For estates exceeding $3 million, there is now a more progressive rate structure with significantly higher tax rates for the wealthiest estates.  For those passing away on or after July 1, 2025, the new rate changes include: 

• Estates valued at $9 million or more will be taxed at a top marginal rate of 35%, up from the previous cap of 20%. 
• Other rate tiers have also increased across the board, with estates in the $4 million to $6 million range now subject to a 23% rate, compared to the prior 18%. 

Other Key Changes 

In addition to the major changes with the estate tax exclusion and tax rates, the legislation also increases qualifying family-owned business interest deductions and extends the agricultural deduction to property passing to a “qualified nonfamilial heir.”

The updated exclusion and rates apply to estates of individuals who pass away on or after July 1, 2025.   

Senate Bill 5813 also introduces a two-tier capital gains tax structure in 2025 – more to come! 

How Betts Patterson Mines Can Help You Prepare 

Now is the time to review your estate planning documents to ensure they still meet your intent and wishes, while maximizing your tax planning options and taking into account the changing tax laws.  The team at Betts Patterson are here to help! Schedule a time with Tasha to talk about your estate planning needs, email us at estate@bpmlaw.com.