Dying can be expensive. According to the Tax Foundation, the U.S. federal estate tax rate of 40 percent is actually the fourth highest of the 34 democracies that make up the Organization for Economic Cooperation and Development (OECD). Thank goodness, that steep tax rate doesn’t apply to most Evergreen State estates, since one is allowed to exclude from taxation the first $5.4 million in assets for federal tax purposes. Unfortunately, that relatively generous exclusion amount leads many in Washington State to think their estates will pass to heirs totally free of tax. In more situations than one might imagine, that isn’t the case.
14 States, Including Washington, Have Estate Taxes
Generally speaking, an inheritance tax is a tax on the beneficiaries of an estate, while an estate tax is a tax on the decedent’s estate. As of 2016, 14 states – including Washington – and the District of Columbia impose an estate tax (six more have an inheritance tax; New Jersey and Maryland have both). Somewhat like the federal system, Washington allows an exclusion amount. In 2016, that amount is $2,079,000. For estates larger than that, estate taxes of up to 20 percent can be due at death (see the official estate tax chart for dates of death after January 1, 2014). Wince when you see it; Washington’s maximum rate is the highest of all states.
Multiple Factors May Push Your Estate Over the $2 Million Mark
The value of your estate is likely higher than you think. A host of factors are pushing valuations higher, including the following:
- Real estate values in Washington are rising. According to a recent story published inThe News Tribune, home prices are rising faster in Washington State than in any other state, having risen more than 10 percent in the past year. Washington prices are growing at a rate twice that of the national average. For homeowners who’ve paid off their mortgages, housing values can push estate valuations considerably.
- Families with undeveloped acreage have some real valuation concerns. Valuations can ratchet upward for two reasons: (a) the overall rise in property values because of inflation, and (b) over time, the number of available parcels for development falls. Do you have 20 acres in the country? You may be surprised by its valuation.
- Pension and retirement accounts must be considered. Many of us consider our retirement investments primarily from an income flow perspective. Are those investments or pensions throwing off sufficient income for monthly expenses? In most cases, the value of those portfolios is included in the gross estate valuations.
- Life insurance may not be part of the probate estate. But insurance proceeds are generally included in the value of adecedent’s estate.
Community Laws Help a Bit, But Not Much
Bear in mind that for the estate of a married decedent, the estate is allowed to reduce the valuation of community property assets by 50 percent to reflect the decedent’s share of the property, but if the spouse inherits most or all your property, that only postpones the date of reckoning; it doesn’t eliminate it.
Proper Estate Planning Can Soften the Impact of Estate Taxes
While estate planning can’t be thought of as a magic wand that can be waived over the issue of estate taxes, proper planning can help minimize the impact of taxes on your estate. Even more important, the properly drafted estate plan can assure your family, and you, that their individual concerns are appropriately addressed. Working with an experienced attorney is a key to success. Bolan Law Group. has more than 30 years of combined experience providing both individuals and businesses with quality legal services throughout the Pacific Northwest. We have helped clients with both simple and complex issues related to estate planning and would be pleased to share our experience with you. We pride ourselves on designing the simplest, most effective solution for your legal issue. For assistance with a will, a trust, or any sort of estate planning issue, contact us on the web, or call our office at (253) 470-2356.