Client Education · Estate Planning

Washington State’s estate tax changed again this July—and most families with meaningful assets have more to gain from reviewing their plan now than they realize.

Washington State has seen more change to its estate tax code in the past thirteen months than in the prior decade. For many families, that’s easy to miss—estate planning tends to feel like a one-time task rather than something that needs revisiting. But the rules governing what you can pass on, and how much of it stays intact, have shifted meaningfully. Our recent webinar with estate attorney Jim Davies walked through what’s changed, what the core documents are, and where families most commonly run into trouble.

What Changed on July 1

Washington’s estate tax has been unusually turbulent. The code in place until mid-2025 was replaced last July by a new structure that raised taxes substantially on larger estates—prompting frustration and, in some cases, residents relocating to avoid it. The legislature responded with a hybrid compromise that took effect July 1, 2026.

The new code restores a $3 million exemption and reverts to the older marginal rate structure—10% at the low end, scaling up to 20% at the top. One notable difference from prior law: the exemption will not be adjusted for inflation going forward. That matters for long-term planning—an estate that sits comfortably below $3 million today could cross the threshold years from now simply through asset appreciation, without any change in the underlying law.

Washington has had three estate tax codes in roughly thirteen months. For families above the $3 million threshold, understanding the current rules—and whether your plan reflects them—is worth the conversation.

The Credit Shelter Trust: Your Most Important Tool

For married couples with combined estates above $3 million, the credit shelter trust is the cornerstone of Washington estate tax planning. You may also hear this strategy referred to as a descendant’s trust, bypass trust, or disclaimer trust—these terms are largely used interchangeably to describe the same underlying approach. The strategy works like this: when the first spouse passes, the surviving spouse can “disclaim” a portion of the inherited assets into a trust within nine months of the spouse’s passing. Those disclaimed assets are held for the surviving spouse’s benefit but are excluded from the surviving spouse’s taxable estate at the second death.

If done correctly, a couple can effectively shelter two exemptions’ worth of assets from Washington estate tax rather than one—a difference that can easily amount to hundreds of thousands of dollars in tax savings for a well-funded estate. If done incorrectly, or not done at all, those savings evaporate.

Three Critical Details

• The option to create and fund a credit shelter trust must exist before the first spouse dies. A credit shelter trust is not funded during life, but the legal framework for creating and funding it must already be built into your estate planning documents. Specifically, the option to establish and fund a credit shelter trust must be included in your will and/or your revocable living trust before the first spouse’s death.
• The disclaimer must be completed within nine months. Federal tax law requires a qualified disclaimer to be made within nine months of the deceased spouse’s date of death. This deadline is strict and generally cannot be extended. The surviving spouse must decide what assets will fund the credit shelter trust of their deceased partner—a decision best made with the counsel of your attorney, CPA, and financial advisor.
• Basis planning requires careful analysis. Whether assets held in the trust receive a second step-up in basis at the surviving spouse’s death depends on how the trust is structured and what tax elections are made after the first death. The decision can have significant income tax consequences and should be evaluated with experienced estate-planning and tax counsel.

Case Study: A $7 Million Estate in Washington

To put the numbers in concrete terms, consider a couple with a $7 million estate. Under the code in place before July 2025, they would have owed approximately $695,000 in Washington estate tax, leaving around $6.3 million to heirs. Under the July 2025–June 2026 code, the tax dropped slightly to roughly $595,000. Under the current July 2026 rules, it falls further to approximately $550,000—leaving $6.45 million to heirs. But a couple that has a credit shelter trust in place and uses it correctly can effectively capture two $3 million exemptions, reducing the estate tax bill to around $100,000 and passing approximately $6.9 million to heirs. That’s a difference of roughly $450,000 compared to the current law without the trust—simply from having the right structure in place.

Gifting, Charity, and the No Gift Tax Advantage

Washington has no state gift tax, which is a meaningful planning advantage. Families can give assets away during life to reduce a taxable estate without triggering any Washington-level tax. Federal gift tax returns are required for gifts above the $19,000 annual exclusion per recipient, but the federal lifetime exemption is $15 million—meaning most families will never owe federal gift tax either. Charitable gifts reduce the gross estate for both Washington and federal purposes and can be structured during life or at death.

One important nuance: when you give away an appreciated asset, the recipient inherits your original cost basis and may owe significant capital gains tax if they sell. In some cases it can be more tax-efficient to hold the asset, pay estate tax at death, and let heirs benefit from the step-up in basis—which eliminates unrealized gains entirely. This tradeoff is worth modeling with your advisor before acting.

The Five Documents Every Client Needs

Estate planning is not only about taxes. Jim Davies outlined five foundational documents for incapacity planning—each serves a distinct purpose, and the absence of any one can leave families in a difficult position:

• Healthcare power of attorney: Designates someone to make medical decisions on your behalf if you are incapacitated. Without one, healthcare providers may be unable to discuss your condition even with your spouse.
• HIPAA release: Authorizes named individuals to access your medical records. This is separate from the healthcare power of attorney and is often overlooked.
• Advanced Directive for Healthcare: Documents your end-of-life care preferences—life support, resuscitation, and similar decisions—so your family is not left guessing under pressure.
• General durable power of attorney: Covers financial and legal affairs when you cannot manage them yourself. If you want the agent to have gifting authority, that power must be explicitly stated in the document.
• Will or revocable trust: A will directs how your assets are distributed at death and is sufficient for many Washington clients. A revocable trust goes further—it allows a successor trustee to manage your assets during incapacity and avoids probate, but only if it is properly funded. Either way, having one or the other is essential.

Two Common Pitfalls to Avoid

The home titled in one spouse’s name. This comes up more often than you’d expect. A couple buys a home decades ago, titles it in one spouse’s name, and never revisits it. In Washington, that property may be treated as separate property at death rather than community property—which means a portion could pass to children rather than the surviving spouse, and the full step-up in basis may be lost. A community property agreement is a straightforward fix that clarifies ownership and preserves the tax treatment most families intend.

Assuming a will or trust controls beneficiary accounts. IRAs, 401(k)s, and life insurance policies pass directly to whoever is named as beneficiary—full stop. A will or trust has no authority over them, regardless of what it says. That means an ex-spouse, a deceased parent, or a child you’d prefer not to receive the funds directly could still inherit if the beneficiary designation was never updated. These designations should be reviewed any time there is a major life event: marriage, divorce, birth of a child, or death of a named beneficiary.