The estate tax limitation goal of any proper plan is to take advantage of the marital deduction coupled with the exclusion amount in order to avoid estate taxes at the first death, and limit or avoid estate taxes at the second death. The tricky thing is that now the Washington State exclusionary level is less than the federal level.
Washington Estate Tax Rates (Table W)
Note: The Washington taxable estate is the amount after all allowable deductions, including the applicable exclusion amount.
|If WA taxable estate is at least . . .||But less than . . .||The amount of tax equals: Initial tax amount . . .||Plus tax rate % . . .||Of WA taxable estate value greater than . . .|
However, recipients of gifts receive the basis of their donor. This factor needs to be considered before one gifts property that has appreciated in value over its tax basis.
So, a Washington resident worth $3 million could, the day before his death gift a million dollars resulting in his estate being valued below the $2,193,000 exemption amount, with a result of no death tax liability.
The value of the decedent’s family-owned business interest cannot exceed $6 million.
There is a family-owned farm exclusion which is unlimited in value. Essentially, if the criteria are met and if the farm is kept in the family, its value can be excluded from one’s taxable estate under both state and federal rules.
WA Qualified Family-Owned Business Interest Exclusion – Table
A credit shelter trust works as follows. The will of the first to die mandates that a portion of his estate, usually the $2 million exclusion amount, is placed in trust. The surviving spouse receives the income from the trust. Upon his/her death, the trust is divided equally among the couple’s children. The amount placed in trust is less than the $2 million exclusion and is not included in the value of the estate of the second to die. Because the trust is mandatory, it protects the amount of the trust from the surviving spouse’s ability to consume, remarry and lose the inheritance, etc.
Under a disclaimer trust, the first to die leaves his/her entire estate to his/her surviving spouse. At the time of the first death, the surviving spouse determines what his/her net worth will be. To the extent it exceeds $2 million, he/she considers disclaiming a portion of the inheritance to keep his/her net worth below $2 million. The amount disclaimed is placed in trust, the surviving spouse receives the income from the trust and manages the trust, and upon his/her death the trust is divided equally among their children.