Washington Estate Taxes
In a class action suit decided February 3, 2005, involving several thousand Washington estates, the Washington Supreme Court has ruled that any amount of a state estate tax that was not fully absorbed by a current federal credit was an invalid independent tax not authorized by state law (Estate of Hemphill v. Department of Revenue, No. 74974-4). Accordingly, because the federal credit for state taxes was fully eliminated as of January 1, 2005, the court's decision effectively phases out the Washington estate tax.
The Washington Supreme Court remanded the case back to the Thurston County Superior Court for further proceedings. The Washington Department of Revenue will issue any refunds owed once the Thurston County Superior Court enters a final judgment.
In the wake of the court decision declaring Washington's estate tax invalid, the state enacted a stand-alone estate tax, effective May 17, 2005. This means that Washington's estate tax will continue even after the federal estate tax is phased out.
The new tax does not apply to estates valued at $1.5 million or less for persons dying in 2005 and estates valued at $2 million or less thereafter.
The tax rates range between 10 and 19 percent, depending on the amount of the taxable estate. If any property in the decedent's estate is located outside Washington, the amount of tax that would otherwise be paid is multiplied by a fraction, the numerator of which is the value of property located in Washington and the denominator of which is the value of the decedent's gross estate. For purposes of the tax, any intangible property owned by a resident is located in Washington.
The table below summarizes the tax rates applied to the Washington taxable estate (less the statutory exemption amount and any applicable deductions taken).
| Washington Estate Tax Rates |
| Taxable Estate at Least |
But Less Than |
Initial Tax Amount |
Plus Tax Rate on Excess Over Col. (1) Amount |
| (1) |
(2) |
(3) |
(4) |
| $0 |
$1,000,000 |
$0 |
10% |
| $1,000,000 |
$2,000,000 |
$100,000 |
14% |
| $2,000,000 |
$3,000,000 |
$240,000 |
15% |
| $3,000,000 |
$4,000,000 |
$390,000 |
16% |
| $4,000,000 |
$6,000,000 |
$550,000 |
17% |
| $6,000,000 |
$7,000,000 |
$890,000 |
18% |
| $7,000,000 |
$9,000,000 |
$1,070,000 |
18.5% |
| $9,000,000 |
and above |
$1,440,000 |
19% |
Deductions. When applying its estate taxes, Washington deducts the same expenses deducted for federal estate tax purposes. Examples of allowable expenses are:
- decedent's debts and liabilities
- funeral expenses
- administration expenses
- executors' and administrators' commissions
- attorneys' fees
- charitable transfers
- taxes for which the decedent is personally liable or which are imposed against property constituting part of the decedent's estate
A deduction is also allowed for qualified farm property plus the value of tangible personal property used primarily for farm purposes. Several requirements, including the following, apply: (1) 50 percent of the estate must be property that was used for farming as of the decedent's death; (2) the decedent or decedent's family must have materially participated in the operation of the farm; (3) and the property must pass to a family member. No requirement of continued use for farming is placed on the heirs.
Returns. A Washington estate and transfer tax return must be filed by the executor, personal representative, or administrator of an estate when:
- the estate of a decedent has property subject to Washington estate and transfer tax, and
- the gross estate, plus adjusted taxable gifts and specific exemption, is more than the filing threshold (i.e., $1.5 million May 17 through December 31, 2005, and $2 million thereafter).
In addition, all estates must file a Washington return if a federal return is required. This applies even if no tax is due.
The Washington Department of Revenue states that the new estate tax return reflecting the changes in effect May 17, 2005, will not be available until late in the summer. For more information, please call (360) 570-3265 and press option number 2 to speak with an estate tax specialist.
The due date of the return is nine months after the date of death, unless a filing extension is obtained. If you receive an extension, remember to attach a copy of it to your return.
Generation-skipping transfer tax. Washington no longer imposes a generation-skipping transfer tax. This applies to the estates of decedents who die May 17, 2005, or later.
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