| The Washington State Estate Tax |
|
On May 17, 2005 the Governor signed into law the new Washington Estate Tax. For estates of those who die on or after May 17 there my be a filing requirement and a tax.
Some important details of the new tax:
The tax is based on the federal taxable estate (under the Internal Revenue Code as it exists on January 1, 2005) without the deduction for state estate taxes, but providing for an exemption deduction of $2,000,000 for deaths on or after January 1, 2006.
There is a deduction for the value of certain farm and timber property.
The marginal rates of tax range from 10% for Washington taxable estates of under $1,000,000 to 19% for taxable estates over $9,000,000.
There is still much to be learned about the new law as the Department of Revenue issues regulations and other pronouncements, and taxpayers have their day in court, but there are several immediate planning points to consider:
Any Washington resident or other persons who have Washington property should immediately review their will and other estate planning documents to consider revisions in light of the new tax law.
Gifting is an important strategy under the new law. While the federal system integrates gift and estate taxes to some degree, Washington does not have a gift tax. A substantial gift, even at deathbed, may be made at little or no federal tax cost, but may save substantial state taxes. Of course the usual strategy of giving only high basis assets apply, or any state estate tax savings may be offset by future capital gains taxes.
Plans that incorporate a Qualified Terminal Interest Trust or other trust vehicles will need to be flexible. The new law did not incorporate those provisions, but left it to the Department of Revenue to promulgate appropriate regulations. This will tax time, and the content of those future regulations could differ substantially from the federal provisions.
People with out of state assets, or non-residents with Washington assets, will require special planning to avoid unintended consequences. As least one commentator has suggested that for some people that split their time between Washington and other states may consider moving their domicile to that other state.
Federal income or estate tax treaties with other countries that service to reduce or modify estate taxes will not apply to the new state tax.