Three Ways to Save on Washington Estate Taxes
The estate tax in Washington is among the highest in the country. The amount of estate taxes range from 10 to 20 percent and they increase depending on the value of the estate. Unlike other states, though, Washington does not have an inheritance tax. An inheritance tax is placed on the beneficiaries of the estate, while the estate tax is a tax on the estate of the deceased. There is an exemption of $2,193,000 on estate tax in Washington. This means that estates greater than this in value will have some taxes applied to them. Below, our Kennewick estate tax lawyer outlines ways you can avoid this tax.
Draft a Credit Shelter Trust
Credit shelter trusts, also known as bypass trusts, are simple and easy ways to eliminate or reduce estate taxes for married people. A credit shelter trust can only be drafted for the benefit of a person’s spouse, meaning people have to be legally married in order to use this strategy to save taxes.
Credit shelter trusts are trusts which can be written into a living trust or a last will and testament, but do not take effect until a person passes away. When one spouse passes away, their assets (or a portion of them) pass into the Credit Shelter Trust for the benefit of the surviving spouse, but not into the spouse’s ownership. Accordingly, those assets “bypass” the surviving spouse’s estate and are not subject to estate tax. After the second spouse passes away, the credit shelter trust will pass to the residual beneficiaries. An estate tax lawyer can draft a will or living trust that contains the proper language for a credit shelter trust.
Making charitable donations is an effective and gratifying way to reduce your estate tax liability. Any asset that is gifted to charity is excused from the taxable portion of the estate. Charities also do not pay taxes on the donations made. You can choose to donate as much as you want to charity, as there is no limit outlined in the law. There also is no requirement that cash is the only type of donation you can give.
Before making donations to charities, speak to a representative first to determine if they need you to include certain language to shield you from estate tax. Any charity you donate to must also be a qualified 501(c)3 organization.
Gifting money, property, or other assets is another great way to reduce your estate tax liability. However, it is not a simple matter of just giving your loved ones an early inheritance. There is a limit to the amount of gifts people can make every year without reporting the gift to the IRS ($18,000 in 2024). If the gifts exceed this limit, then federal estate tax exclusion amounts are impacted. There are a lot of strategies you can use to stay within the limits and still lower your estate taxes, but they should be done only after consulting a gift tax attorney. Finally, it is important to note that gifting appreciated assets does not give the donee a new basis. If the asset is sold, the gain will be taxed at a capital gains rate, which may be higher than the estate tax rate.
Speak to an Estate Tax Lawyer in Kennewick
One of the best ways to make sure your estate and loved ones are protected is to speak to a Kennewick estate tax lawyer. At Moulton Law Offices, P.S., our experienced attorneys can advise you of the current estate tax law and the strategies you can use to limit your liability. Call us now at 509-328-2150 or chat with us online to request a consultation and to get the legal help you need.