If you have been reading the headlines, you could be forgiven for thinking the estate tax is a problem only for the ultra-wealthy. In 2026, the federal estate tax exemption sits at roughly $15 million per person — which means a married couple can pass close to $30 million before a dollar of federal estate tax is due. For the overwhelming majority of families, the federal estate tax is simply not a concern anymore.
But here in Washington, that is only half the story. Washington imposes its own separate estate tax, and it starts at just $3 million per person. So it is entirely possible — common, even — for a Washington family to owe nothing at the federal level and still face a six- or seven-figure state estate tax bill. If your planning stops at the federal exemption, you may be walking into exactly that trap.
A Tax That Changed Twice in a Single Year
Before we get to strategy, you need to know that Washington's estate tax has been a moving target. In the span of about twelve months, the rules changed twice.
For years, Washington's exemption was frozen at $2.193 million, with a top rate of 20%. Then, effective July 1, 2025, the Legislature raised the exemption to $3 million (indexed for inflation) but also pushed the top marginal rate all the way to 35% — briefly the highest standalone estate tax rate in the country. That aggressive rate did not last long. In March 2026 the Legislature reversed course: for deaths occurring on or after July 1, 2026, the top rate rolls back to 20%, the exemption stays at $3 million, and the inflation adjustment is frozen in place.
The critical thing to understand is that your date of death — not the date you signed your documents, and not the date the return is filed — determines which set of rules applies. Because the law has whipsawed back and forth, older estate plans built around a specific exemption figure may no longer do what you intended. More on that below.
The $3 Million Exemption Is Lower Than It Sounds
A $3 million exemption may sound generous until you actually add up what belongs in a taxable estate. Washington counts essentially everything you own at death: your home, your other real estate, retirement accounts, brokerage accounts, business interests, personal property — and, critically, the full death benefit of any life insurance you own on your own life.
That last item surprises people. A schoolteacher and a small-business owner with a paid-off home in Gig Harbor, a healthy 401(k), and a $1 million life insurance policy can cross the $3 million line without ever having felt wealthy. And because the exemption is now frozen rather than indexed to inflation, every year of rising home and asset values quietly pulls more Washington families over the threshold. This is bracket creep, and it is working against you.
How the Tax Is Actually Calculated
Washington's estate tax is graduated. Only the amount above the $3 million exemption is taxed, and it is taxed in tiers that begin at 10% and climb to 20% on the largest estates.
Here is a concrete example. Suppose you die in late 2026 with a $6.5 million estate. Washington first subtracts the $3 million exemption, leaving a $3.5 million 'Washington taxable estate.' You then read that figure straight off the state's rate table: a $3.5 million taxable estate carries an initial tax of $390,000, plus 16% of the amount over $3 million. Here, $500,000 sits above the $3 million mark, and 16% of $500,000 is $80,000 — so the total Washington estate tax is $470,000. Your federal estate tax on that same estate? Zero.
That $470,000 gap is the whole point. It is money that goes to Olympia purely because of where you lived, and much of it is avoidable with planning done while you are alive.
No Portability — The Trap That Costs Married Couples the Most
This is the single most important — and most misunderstood — feature of Washington's estate tax.
At the federal level, spouses enjoy 'portability': when the first spouse dies, the survivor can carry over the deceased spouse's unused exemption and add it to their own. Washington has no such rule. If you do not use your $3 million exemption at your death, it is gone forever.
Here is how families lose money without realizing it. A couple with a combined $6 million estate leaves everything outright to each other. When the first spouse dies, there is no tax, because transfers between spouses are fully deductible. It feels like a win. But that first spouse's $3 million Washington exemption was never used — and it cannot be ported to the survivor. When the second spouse dies with the full $6 million, only one $3 million exemption is available. The $3 million above it is taxed, producing a Washington estate tax of about $390,000.
With proper planning, that same couple could have sheltered all $6 million and paid nothing. The entire tax bill in that scenario exists only because one spouse's exemption was wasted.
The Fix: Credit Shelter (Bypass) Trusts
The standard tool for capturing both spouses' exemptions is a credit shelter trust — also called a bypass trust. The concept is straightforward. At the first spouse's death, up to $3 million is directed into a trust rather than passing outright to the survivor. The surviving spouse can still benefit from that trust — receiving income, and principal for health, education, maintenance, and support — but because the assets are held in the trust rather than owned outright, they are not counted in the survivor's taxable estate at the second death.
The result: the first spouse's $3 million exemption is preserved and used, the survivor still has access to the funds during life, and the couple effectively shelters roughly $6 million instead of $3 million. For a couple near or above that combined threshold, this one structural decision can be the difference between a large tax bill and none at all.
A Warning About Old "Formula" Language
Because Washington's exemption has jumped from $2.193 million to $3 million in a short window — and because many older documents use 'formula clauses' that automatically fund a bypass trust with 'the maximum amount that can pass free of estate tax' — plans drafted years ago can now behave in ways you never intended. A formula written when the exemption was $2 million may over-fund or under-fund a trust today, sometimes shifting far more (or far less) to a trust than you actually want.
This is exactly the lesson of the high-profile estate disasters I have written about elsewhere: documents that sit untouched for years quietly drift out of alignment with both the law and your wishes. If your plan predates these changes, it deserves a fresh look.
Washington’s Hidden Advantage: There Is No Gift Tax
Now for the good news — and it is genuinely good. The federal government taxes large lifetime gifts, and every taxable gift you make chips away at the same exemption you would otherwise use at death. Washington does not do this. Washington has no gift tax at all.
That single fact creates a planning opportunity most states cannot offer. Assets you give away during your lifetime are permanently removed from your Washington taxable estate — and, because there is no Washington gift tax, doing so does not cost you any part of your $3 million Washington exemption. In effect, a Washington resident can gift assets out of the state's reach and still keep the full $3 million exemption intact for whatever remains.
For a family whose estate sits somewhat above $3 million, a thoughtful program of lifetime gifting can bring the taxable estate back under the threshold and eliminate the Washington estate tax entirely. (Federal gift rules still apply, but with a federal exemption near $15 million and an annual exclusion of $19,000 per recipient in 2026, most gifts carry no federal cost either.)
But Beware the Basis Trade-Off
Before you start giving assets away, there is a crucial catch that I want you to see clearly, because getting it wrong can cost your heirs more than the estate tax you were trying to avoid.
When you give an appreciated asset away during your lifetime, the recipient takes your original cost basis — this is called 'carryover basis.' If they later sell, they pay capital gains tax on all the appreciation, including the growth that happened while you owned it. But if you instead hold that same asset until death, it receives a 'step-up' in basis to its fair market value on the date you die. The built-in capital gain simply vanishes for income tax purposes.
So there is a real tension. Gifting an asset during life can save Washington estate tax but can also forfeit a valuable step-up, creating a future capital gains bill. Holding the asset until death preserves the step-up but keeps the asset in your taxable estate. Which move wins depends on the specific asset, how much it has appreciated, your total estate size, and your family's situation. This trade-off — estate tax savings versus income tax savings — is the heart of modern estate planning, and I will dig into it in a companion article on basis planning.
A Few Other Rules Worth Knowing
Several additional points round out the picture. A Washington estate tax return must be filed if the gross estate exceeds the filing threshold, even if deductions ultimately bring the tax to zero — filing is not optional just because no tax is due. Washington also allows meaningful deductions, including charitable bequests, estate administration expenses, and a Qualified Family-Owned Business Interest deduction that can shelter a substantial amount for qualifying family businesses and farms. And the tax is not limited to residents: a person who lives elsewhere but owns real estate or tangible property in Washington can owe Washington estate tax on that in-state property, with a proration for property located outside the state.
What This Means for You
If your estate — counting your home, retirement accounts, investments, business, and life insurance — is anywhere near $3 million, you should assume Washington's estate tax is relevant to you, even if you will never owe a dollar of federal estate tax. And if you are married, the no-portability rule means that doing nothing can quietly waste one spouse's entire exemption.
The encouraging part is that Washington gives you real tools to work with: credit shelter trusts to capture both spouses' exemptions, and a no-gift-tax environment that makes lifetime gifting unusually powerful — provided you weigh the basis trade-off carefully. The right combination depends on your numbers and your goals.
If it has been more than a few years since your plan was reviewed, or if it was drafted before Washington's recent estate tax changes, now is the time to revisit it. I would be glad to review your situation and walk you through your options. Call me at (253) 564-1856 or use the contact form on this site — there is no charge for an initial consultation.
This article is general information about Washington law as of mid-2026 and is not legal or tax advice for your specific situation. Because the estate tax rules turn on your date of death and have changed more than once recently, please confirm the current figures with an attorney before acting.
