The Unchanging Landscape of Estate Tax Indexing in Washington State

In Washington State, the landscape of estate taxation has remained unchanged in a crucial aspect: the lack of indexing for inflation. This oversight has far-reaching implications for residents, particularly as the cost of living and asset values continue to rise. To understand the gravity of this issue, let’s consider the case of John and Jane Doe, a married couple in their mid-50s back in 2018.

The Does’ Financial Snapshot in 2018: John and Jane had a combined asset value of approximately $2 million, including their home in Seattle valued at $362,100. At this time, they were comfortably below the Washington estate tax exemption threshold of $2,193,000.

Fast Forward to 2024: Six years later, the Does are in their early 60s. The value of their assets, including their home—now worth $845,000—has appreciated significantly. However, the estate tax exemption remains unchanged at $2,193,000.

The Problem: If we had indexed the 2018 exemption amount to the cumulative inflation rate of 24.32%, the exemption would stand at approximately $2,726,776 today. The Does’ estate, now valued closer to $2.5 million due to asset appreciation and inflation, would still be exempt from estate taxes if the exemption had kept pace with inflation. However, with the static exemption, they find themselves facing potential estate taxes.

The Bigger Picture: The Does are not alone. Many Washingtonians are finding themselves in a similar predicament. The median home price in Seattle has more than doubled in six years, and without the exemption adjusting for inflation, a growing number of residents will likely be subject to estate taxes. Moreover, as their estates continue to grow, they may face higher tax rates in the future.

The static nature of the Washington estate tax exemption not only fails to reflect the economic reality of appreciating assets but also places an increasing tax burden on residents. It’s a silent issue that will only amplify unless legislative measures are taken to reintroduce indexing and adjust tax brackets accordingly.