Do I Need to Worry About Estate Taxes?

How much could my family lose to estate taxes when I pass?

Fear of losing family wealth to estate taxes often weighs heavily when planning to pass your assets to future generations. The estate tax can be confusing and frustrating, wondering how many different taxes there are, how much you might have to pay, and what you can do about it. This is compounded if you live in a state with its own estate tax, like ours here in Washington State.

Fortunately, with a bit of knowledge, we find that you can easily see how the estate tax affects you and what you can do about it. Here’s how the estate tax works, both federal and Washington State, how to tell if you should worry about them, and a curated list of resources to help you reduce estate taxes and maximize the transfer of your hard-earned wealth.

How does the estate tax work?

Estate taxes are taxes imposed when you transfer wealth at your death. They are assessed on your total net worth value on the date of death. There are two levels of estate tax: the federal estate tax and state specific estate taxes. We will focus here on the Washington State estate tax and the federal estate tax.

Federal estate tax

Let’s start with how the federal estate tax works.

• Your first $13.61 million passes tax-free – called an “exemption” (adjusted annually for inflation).
• Each spouse gets an exemption, so married couples can pass $27.22 million tax-free.
• After exemptions are applied, the tax rate starts at 18% on your first taxable $10,000 and climbs to 40% on taxable assets over $1 million.

Here’s a full breakdown of the federal estate tax rates:

IMPORTANT! The federal estate tax exemption is set to be cut in half on January 1, 2026, making estates over $6 million taxable. If this is you, don’t wait to start planning. Learn more about making the most of the current all-time high estate tax exemption.

Washington State estate tax

In addition to the federal estate tax, some states have their own estate taxes, each with different thresholds and rates. This means you could be subject to two estate taxes depending on your wealth level and where you live. In Washington State, once you surpass the $2.193 million (adjusted annually for inflation) individual exemption amount, the estate tax is levied.

Here’s a full breakdown of the Washington State estate tax rates:

How big is your tax bill?

With an understanding of how the tax works, your next step is finding out if the tax applies to you. If you’re a Washington State resident, you can use our estate tax calculator to get an idea of how much tax your family could be facing. If you don’t have an estate tax problem today, make sure to check again as your wealth grows over time and as laws and tax thresholds change. But what if you do have an estate tax problem?

You have an estate tax bill…now what?

Start by envisioning the future. What are your aspirations for your family? Your business? Charitable causes you care about? Gaining clarity on what you desire for your legacy makes designing the right strategy for you simpler.

If you haven’t created an estate plan, the government already has a plan for how your assets will be transferred and taxed. We call it the “default plan.” So, it’s time to decide if you’re happy with the government’s plan or if your own customized plan would serve you better.

When thinking about who will receive your wealth, there are only three categories:

• Government (taxes)
• Your family
• Charitable organizations

With that in mind, how would you divide your wealth between the three? 70% family, 20% charity, 10% taxes? Or perhaps 100% family and 0% taxes? Answering this question can bring clarity to your goals and help inspire your ideal plan. We call this planning by design vs default.

Planning by design puts you in the driver’s seat, crafting an integrated plan that enables you to live today and create your desired outcome. To get started, answer these three questions, then explore the resources we provide below to learn more about strategies that can increase your impact.

• Step 1: Enjoy Life. How much income do you need to enjoy your life and create the memorable experiences you’ve worked so hard for?
• Step 2: Provide for loved ones. What do you want to create for future generations of your family? Perhaps you want to fund education for grandchildren or help them start their own businesses.
• Step 3: Impact causes you care about. What charitable or community causes do you love and what do you want to create for them?

These are part of the important building blocks to get you moving on your plan, clear confusion, and gain clarity on the goals that are most important to you.

Want to learn more? If you find the estate tax applies to you, these other resources will help you gain clarity.

How do I reduce estate taxes?

Should I leave Washington State to avoid the estate tax?

Smart legacy planning for your business.

5 ways to reduce estate taxes – a video walkthrough.

Estate taxes are one of the most frequent worries and sources of confusion we hear, so you’re not alone if you feel frustrated. However, with some smart planning, you can greatly reduce their impact.

By being proactive and taking action now, you can safeguard your wealth, minimize taxes, and ensure that your assets pass smoothly on to the next generation. A little planning today can result in substantial benefits down the road.

Your financial advising team can help determine the right plan and strategy for you. And, of course, if you’re looking for a team to help with integrating strategies like these into a plan for you, please reach out!