Maximizing Estate Tax Benefits with a Disclaimer Trust in Washington State

Estate tax planning is essential for managing assets and ensuring beneficiaries receive the maximum inheritance. In Washington State, where the estate tax exemption is not portable, a disclaimer trust can be a powerful tool to reduce estate taxes and offer flexibility to the surviving spouse.

Washington State Estate Tax Overview

Washington State imposes an estate tax on estates valued over $3 million (as of July 1, 2025). This total includes assets such as real estate, investments, and even the death benefit from life insurance policies. If your estate exceeds this amount, taxes may be owed on the excess.

Unlike federal estate tax laws, Washington State does not allow a surviving spouse to retain any unused portion of their spouse’s exemption. This means that if no planning is done, the first spouse’s exemption could be lost. However, with careful estate tax planning, a married couple can effectively double the amount that can be passed on to their beneficiaries without estate tax.

Traditional Planning Meets Modern Flexibility

Historically, preserving both spouses’ exemptions in Washington required establishing what attorneys call a “bypass trust” or “credit shelter trust” at the first death. These trusts automatically capture assets up to the exemption amount, ensuring the first spouse’s $3 million exemption doesn’t go to waste. While this mandatory approach achieves the tax savings goal, it locks families into a predetermined structure regardless of their circumstances at the time. Today’s families often seek a more flexible solution—one that preserves the tax benefits while allowing the surviving spouse to make decisions based on their actual needs and the current tax landscape when the time comes.

Setting Up a Disclaimer Trust

A disclaimer trust gives the surviving spouse the option to formally decline (or “disclaim”) a portion of the inheritance from the deceased spouse. The disclaimed portion is then placed into a separate trust, which can still benefit the surviving spouse during their lifetime but is excluded from their taxable estate when they pass away.

Here’s why that matters:

• • Continued Access and Control: The assets that are disclaimed are then transferred into a separate trust, which can continue to be managed by and benefit the surviving spouse.

  • Estate Tax Savings: These assets are excluded from the surviving spouse’s estate for tax purposes, helping preserve wealth for future beneficiaries and maximizing estate tax exemptions.

  • Flexibility: One of the key advantages of a disclaimer trust is its flexibility: the surviving spouse can decide, within a set period, whether to disclaim assets based on their financial situation and needs at the time.

  • Avoiding Probate: Another benefit is that assets held within a disclaimer trust are exempt from probate and are distributed in accordance with the trust’s provisions, eliminating the need for court intervention.

To use this strategy, the disclaimer trust must be written into your Will or Revocable Living Trust in advance. It’s not something that can be added after someone has passed, so it’s important to include it as part of your estate plan while both spouses are living and able to make decisions together.

Making the Most of Washington’s Exemption Rules

In Washington State, where the estate tax exemption is not portable, a disclaimer trust can be an essential part of a well-crafted estate plan. It offers meaningful tax savings, preserves flexibility for the surviving spouse, and helps ensure more of your estate is passed on to children or other beneficiaries rather than lost to taxes.

By including a disclaimer trust in your Will or Revocable Living Trust ahead of time, couples can take full advantage of both spouses’ exemptions and minimize the risk of unexpected tax consequences. This kind of thoughtful, proactive planning can make a significant difference in preserving family wealth for the next generation.