Proposed Changes to Washington State Estate Tax: What You Need to Know

Feb 25, 2025 | Advanced Planning, Asset Protection, Estate Planning, Informational Articles, Notes from Derek, Tax Planning

  Proposed Changes to Washington State Estate Tax: What You Need to Know

Washington State is considering significant updates to its estate tax structure, with House Bill 2019 (HB 2019) and House Bill 1375 (HB 1375) currently under review. These proposed changes could impact estate planning strategies, particularly for high-net-worth individuals. Below, we outline the key provisions of these bills, their potential outcomes, and what this means for estate planning in Washington.

Current Estate Tax Framework

As of 2024, Washington imposes an estate tax on estates valued over $2.193 million, with rates ranging from 10% to 20%. Unlike the federal estate tax, which allows portability for married couples, Washington’s estate tax exemption is not transferable to a surviving spouse, making strategic estate planning essential.

House Bill 2019: A More Progressive Estate Tax

HB 2019 aims to increase progressivity in Washington’s estate tax by:

  • Raising the estate tax exclusion to $3 million for deaths occurring on or after January 1, 2025.
  • Adjusting the exemption for inflation using the Consumer Price Index.
  • Implementing a tiered tax structure, with rates ranging from 16% to 38%, significantly higher than the current 10% minimum.
  • Generating additional revenue to help address Washington’s projected $10-16 billion budget shortfall over the next four years.

If enacted, this bill could reduce estate tax burdens for smaller estates while increasing taxes on larger estates, potentially influencing wealth retention and migration patterns in Washington.

House Bill 1375: A Narrower Approach

In contrast, HB 1375 focuses solely on inflation indexing for the current estate tax exemption. This would provide a more modest relief by ensuring that the exemption increases in line with inflation, addressing concerns about the erosion of the exemption’s real value over time. Unlike HB 2019, HB 1375 does not propose tax rate changes, making it less controversial and more likely to pass with bipartisan support.

Legislative Outlook and Potential Impact

As of February 28, 2025, both bills remain in the House Finance Committee, with HB 2019 facing more scrutiny due to its significant tax increases. Given that Democrats control the legislature, HB 2019 has a high probability of passing if party support remains strong. However, Governor Bob Ferguson has expressed reluctance toward new taxes, creating uncertainty around a potential veto.

HB 1375, with its technical adjustment approach, is viewed as a less contentious measure and has a higher chance of becoming law.

Estate Planning Considerations

With these potential changes, Washington estate planners should consider:

  • Gifting Strategies: If HB 2019 passes, estates subject to the higher rates may benefit from lifetime gifting strategies, particularly using the $19,000 annual gift tax exclusion (2025 limit) and federal lifetime exemption of $13.99 million.
  • Trust Planning: Utilizing Washington Exempt Trusts or bypass trusts can help shield wealth from estate taxes while maintaining access and control.
  • Portability Issues: Since Washington does not allow estate tax portability, estate planning strategies must account for the loss of the first spouse’s exemption to prevent unnecessary taxation at the second spouse’s death.
  • Step-Up in Basis: Assets transferred at death still receive a step-up in basis, reducing capital gains exposure for heirs. Proper asset selection for gifting versus retention in the estate is critical.

The proposed estate tax changes in Washington underscore the importance of proactive estate planning. Whether HB 2019, HB 1375, or a compromise bill is enacted, these changes could have significant implications for tax efficiency and wealth preservation.