Washington State’s New Estate Tax Law Effective July 2025: Key Provisions and Implications
Author: Richard Reynolds, CVA, MAFF
Background: Washington’s Prior Estate and Gift Tax Regime
Washington State has long imposed its own estate tax on the transfer of a decedent’s assets at death, separate from the federal estate tax. The state estate tax is levied on the decedent’s estate (not on individual heirs) and applies to Washington residents’ real property and intangible assets as well as to non-residents who own real or tangible property in Washington.
The Washington Estate Tax Before July 2025
Before the new law, each individual’s estate benefited from a $2.193 million exclusion from Washington estate tax. In other words, the first $2.193 million of an estate’s value was exempt from state tax, and only the excess above that threshold was taxed. This exclusion amount had been fixed at $2.193 million since 2018 because the inflation index previously used to adjust it, the Seattle-area consumer price index or CPI, was discontinued. Assets above the exclusion were taxed at graduated rates ranging from 10% to 20% under the prior law. Notably, Washington’s top rate of 20%, applying to estate value over about $9 million, was already among the highest state estate tax rates in the United States. Comparatively, most other states with estate taxes established maximum rates between 16% and 20%.
Washington had no provision for “portability” of its state exclusion between spouses. Unlike federal law, a deceased spouse’s unused Washington exemption could not be transferred to the surviving spouse. Instead, estate planners often used credit shelter trusts (sometimes called Washington exemption trusts) at the first spouse’s death to preserve the state exemption for the surviving spouse’s estate.
The Washington Gift Tax Before July 2025
Washington has never imposed a gift tax, a policy that remained unchanged even with the passage of the 2024 legislation. As a result, lifetime gifts made by Washington residents are not subject to any state-level gift tax and do not diminish the individual’s Washington estate tax exclusion. Only federal gift tax rules govern such transfers. This lack of a state gift tax has long created planning opportunities, allowing individuals to make substantial lifetime gifts that reduce the size of their estate for Washington estate tax purposes without triggering any state tax consequences. Estate planners working with affluent Washington residents have routinely taken advantage of this framework, implementing lifetime gifting strategies, within federal limits, to shift assets out of the taxable estate and minimize exposure to Washington’s estate tax at death.
Other Considerations Before July 2025
Washington permits several deductions that can further reduce the size of a taxable estate. Since 2014, for instance, estates have been able to claim a deduction of up to $2.5 million for qualifying family-owned business interests (QFOBI). In addition, Washington offers an unlimited deduction for qualified farms, including both land and farm property, passing to heirs. Notably, heirs are not required to continue farming in order to receive this benefit. However, both the QFOBI and farm deductions are subject to “recapture” rules. Generally, if the heir fails to maintain the business or farming activity for at least three years, additional estate tax may become due.
Transfers to a surviving spouse who is a U.S. citizen or to a qualified charity are also fully deductible, creating an unlimited marital and charitable deduction at both the federal and state levels. As a result, married individuals can leave assets to a surviving spouse without incurring estate tax. However, unlike the federal system, Washington does not allow spousal portability. This means that without proper planning, any unused portion of a deceased spouse’s Washington exclusion is lost.
In summary, prior to 2025, Washington’s estate tax system featured a relatively modest exemption of $2.193 million, especially when contrasted with the federal exemption, which has exceeded $12 million in recent years. The state also imposed a progressive estate tax rate ranging from 10% to 20%, offered no gift tax, and provided no portability between spouses. These features formed the baseline for the significant reforms introduced by the 2024 legislation.
Key Legislative Changes as of July 1, 2025
In 2024, the Washington Legislature enacted Engrossed Substitute Senate Bill 5813 (ESSB 5813), a major tax initiative intended to support education funding. Among its provisions were sweeping reforms to the state’s estate tax. Governor Ferguson signed the bill into law on May 20, 2025, and the estate tax changes apply to decedents who pass away on or after July 1, 2025.
A Higher Estate Tax Exclusion…
The per-person estate tax exclusion increased from $2.193 million to $3.0 million for deaths occurring on or after July 1, 2025. In practical terms, each individual may now shield up to $3 million of their estate from Washington estate tax under the new law. This long-anticipated adjustment, the first in more than a decade, will eliminate many smaller estates from the tax rolls. In addition, the legislation addresses the prior stagnation of inflation indexing by establishing a new benchmark for future increases. Beginning in 2026, the $3 million exclusion will be adjusted annually for inflation, using a current consumer price index and setting October 2024 as the base reference point. This change reinstates the inflation adjustment mechanism that had stalled after 2018.
It is important to note that Washington still does not permit spousal portability of the exclusion amount. The $3 million exclusion applies per decedent, meaning a married couple can access a combined $6 million only through appropriate estate planning. Strategies such as the use of a credit shelter trust remain essential to preserve the exemption of the first spouse to die. Finally, the legislation did not introduce a state-level gift tax. Washington continues to impose no gift tax, allowing lifetime transfers to remain unaffected by these changes.
…Met by a Higher Tax Rate Schedule
The estate tax rates for larger estates have increased, making the overall structure more progressive. While the lowest bracket remains unchanged at 10% for the first $1 million of taxable value above the exemption, nearly every higher bracket now reflects elevated rates. Under prior law, the top marginal rate was 20% on taxable estates exceeding $9 million. The new law raises that top rate to 35% on amounts above the same threshold. The table below, based on the statutory rate schedule, compares the old and new rates across each bracket of Washington taxable estate value:
| Estate Value (Over the Exemption) | Prior Estate Tax Rate | New Estate Tax Rate (Effective July 2025) |
|---|---|---|
| Less than $1 million | 10% | 10% |
| $1 million to $2 million | 14% | 15% |
| $2 million to $3 million | 15% | 17% |
| $3 million to $4 million | 16% | 19% |
| $4 million to $6 million | 18% | 23% |
| $6 million to $7 million | 19% | 26% |
| $7 million to $9 million | 19.5% | 30% |
| More than $9 million | 20% | 35% |
Estates falling into the highest brackets will now face significantly higher state tax burdens. For instance, a taxable estate just over $9 million would have previously been taxed at a 20% marginal rate. However, that same estate will now incur 35% on the amount above that threshold. With this change, Washington now imposes the highest estate tax rate of any state in the country, as most other states with estate or inheritance taxes cap their top rates between 15% and 20%.
The legislature’s stated goal in enacting these rate increases was to generate additional revenue for public education by placing a heavier tax burden on the state’s wealthiest estates. In contrast, smaller estates will benefit from the higher exemption and will not be subject to the top-bracket increases.
Expanded Family Business and Farm Deductions
ESSB 5813 also introduces targeted relief for certain businesses and farms while incorporating safeguards to prevent abuse of these benefits. First, the law raises the deduction cap for qualified family-owned business interests (QFOBI) from $2.5 million to $3 million, with future adjustments indexed to inflation in the same manner as the estate tax exclusion. This change allows estates to deduct up to $3 million of a qualifying family business’s value, provided the existing requirements are met, including the rule that the business must continue operating for at least three years after the decedent’s death.
Second, the law expands eligibility for the farm property estate tax deduction. Under the prior framework, Washington permitted an unlimited deduction for qualifying farm property, but only if the property passed to a family member. That deduction did not require the heir to continue farming. The new law broadens this benefit by allowing a “qualified nonfamilial heir” to inherit farm property while still preserving the estate’s eligibility for the deduction. In essence, a long-time farm employee who materially participated in the farm’s operations may now be treated similarly to a family member for estate tax purposes.
This revision allows a decedent to leave farm property to a trusted employee, not just a relative, and still receive the same estate tax deduction that was previously limited to family heirs. The statute defines a “qualified nonfamilial heir” as an employee who materially participated in the operation of the farm and to whom the property passes at death. This adjustment reflects the modern reality that not all farming successors are family members and aims to support the continuity of agricultural enterprises. To prevent misuse, the law includes recapture provisions similar to those applicable to QFOBI deductions. If the farm ceases to be used for agricultural purposes or if the qualified heir fails to maintain material participation within three years, the estate tax benefit is clawed back through an additional tax.
Implications for Estate Planning Under the New Law
The 2024 changes to Washington’s estate tax law carry meaningful, practical implications for estate planning within the state. Although the statute itself does not provide tax guidance, estate planning professionals will need to adapt their strategies to reflect the new legal and tax landscape.
More Estates Are Exempt, but Planning Is Still Needed
Raising the exclusion from approximately $2.2 million to $3 million, with future inflation adjustments, will immediately eliminate Washington estate tax exposure for many moderately wealthy individuals. Estates valued under $3 million will owe no state estate tax for decedents dying after July 2025. Even estates modestly above that amount will benefit from reduced liability due to the larger exempt portion. This change lowers the urgency of advanced estate planning for individuals in the $2 million to $3 million range, who were previously at or near the taxable threshold.
For larger estates, however, planning remains essential. In fact, the need is even greater now given the significantly higher marginal tax rates at the upper end. Washington estates exceeding $3 million may face marginal rates as high as 35%, amplifying the cost of leaving assets exposed at death. For married clients, estate planners will continue to rely on tools such as credit shelter trusts or family bypass trusts to ensure that both spouses’ $3 million exclusions are fully utilized, since Washington law still does not allow portability between spouses.
A separate provision enacted in 2024 may also simplify planning for certain estates. Under the new primary residence spousal transfer exclusion, if a decedent’s share of the family home passes to a surviving spouse and the rest of the estate is below the exemption amount, the home’s value may be excluded from the filing threshold calculation. This can eliminate the need to file a Washington estate tax return in some cases, offering administrative relief for middle-class estates, although it does not affect the actual tax due. Advisors should update their post-2025 estate administration checklists accordingly, including evaluating whether a return is required or can be waived when a residence passes to a spouse within the threshold limits.
Continued (and Enhanced) Use of Lifetime Gifting
Washington’s continued lack of a gift tax, combined with the newly increased estate tax rates, makes lifetime gifting an even more compelling strategy for transferring wealth. Because Washington does not impose a tax on gifts and does not apply them against the state estate tax exclusion, lifetime transfers can remove both the gifted assets and their future appreciation from Washington’s estate tax entirely. In contrast, federal gift tax rules follow a unified credit system, meaning gifts reduce the donor’s federal lifetime exemption. This distinction allows Washington residents to make substantial lifetime gifts without eroding their state exclusion, creating a powerful opportunity for long-term estate tax planning.
As a result, estate planners are likely to encourage more proactive gifting strategies, especially for clients with sizable estates. The federal estate and gift tax exemption remains historically high, set at $12.92 million per person in 2023 and $13.61 million in 2024, and under the One Big Beautiful Bill Act (OBBBA), this elevated exemption level is no longer scheduled to sunset in 2026. This legislative certainty provides a stable environment for lifetime wealth transfers. Substantial lifetime gifts may remove assets, along with their future appreciation, from both the federal and Washington estate tax base. For Washington residents in particular, gifting continues to be an especially powerful tool for bypassing the state’s estate tax entirely on the transferred assets.
For example, a Washington resident who transfers $10 million into irrevocable trusts for descendants in 2024 may use most or all of their available federal exemption. While earlier law had contemplated a reduction in the exemption amount, the OBBBA has removed that uncertainty by making the current exemption permanent. Accordingly, gifts made under the existing exemption limits may reduce the size of both the federal and Washington taxable estate, potentially avoiding substantial estate tax at Washington’s marginal rates.
Common techniques in this environment include annual exclusion gifts, now $19,000 per donee in 2025, as well as larger gifts that utilize the full lifetime exemption. More advanced approaches, such as grantor retained annuity trusts (GRATs), family limited liability company (LLC) transfers, and sales to intentionally defective grantor trusts, may also be used to freeze or shift future appreciation out of the taxable estate.
At the same time, any gifting strategy should be evaluated in light of the client’s broader financial circumstances. Donors must ensure they retain adequate assets to meet lifetime needs and consider any applicable federal tax consequences, including gift tax reporting obligations and generation-skipping transfer tax exposure.
Finally, Washington’s estate tax law does not include a gift “clawback” provision. Unlike in some states, gifts made shortly before death are not added back into the estate for Washington estate tax purposes. As a result, even late-in-life transfers may continue to reduce Washington estate tax exposure under current law.
Reassessing Residency and Property Location
Given the increase in Washington estate tax rates, some high-net-worth individuals may revisit their state of residence or the location of their assets as part of their estate planning. Washington imposes estate tax on its residents’ intangible personal property, such as stocks, investment accounts, and partnership interests, regardless of where those assets are located. In contrast, non-residents are only subject to Washington estate tax on real property and tangible personal property physically located within the state.
This distinction creates a potential tax planning opportunity. Changing domicile to another state, or ensuring that key assets are located outside Washington, may reduce or eliminate state estate tax exposure for individuals willing to make that life adjustment. The new higher rates increase the potential tax impact. For instance, a $20 million estate belonging to a long-time Washington resident could incur more than $4.7 million in state estate tax, a substantial incentive for some to consider relocation.
Practitioners are also reporting that clients frequently raise the question, “Should I leave Washington to avoid the estate tax?”, especially when confronted with a substantial state tax layered on top of the federal estate tax. Moving to a state with no estate tax, such as California or Arizona, or even Oregon, which only taxes the estates of its own residents, may eliminate Washington’s reach over intangible assets. As one advisory observes, “Washington presently has no claw-back provisions to make you pay the estate tax after you move.” In other words, if a person lawfully changes their residency and later dies outside Washington, the state cannot impose estate tax on their intangible wealth.
Still, relocation is a complex decision that often involves more than tax considerations. Ties to Washington, including family, business interests, and quality of life, frequently outweigh any potential tax savings. Estate planners typically present relocation as one of several options, alongside intra-state strategies such as lifetime gifting or trust structures, rather than offering it as a one-size-fits-all solution.
Additionally, individuals who retain Washington-based real estate or closely held businesses should be aware that those assets remain subject to estate tax, even if the owner is a non-resident at death. Strategies to address this exposure may include transferring real property to entities or trusts that alter its character, although Washington authorities will examine substance over form. Other approaches, such as life insurance planning, can also be used to cover anticipated liabilities.
Ultimately, the new law has heightened awareness of state residency in estate planning. Advisors are increasingly modeling the comparative implications of staying versus moving, incorporating residency into broader discussions of tax exposure and estate administration.
Integration with Federal Estate Tax Planning
High-net-worth Washington estates now confront significant exposure to both state and federal estate taxes. Washington’s exclusion has increased to $3 million, and under the One Big Beautiful Bill Act (OBBBA), the federal estate tax exemption remains permanently elevated. The exemption was $12.92 million in 2023 and is $13.99 million in 2025, with no scheduled reduction. While this provides welcome certainty, estates that exceed the federal threshold will still face a 40% federal estate tax in addition to Washington’s state tax.
A key point of interaction between the two systems is that Washington estate tax paid is deductible on the federal estate tax return under IRC §2058. This deduction reduces the value of the taxable estate for federal purposes and helps soften the combined tax burden. For example, one dollar in the highest Washington bracket incurs 35 cents of state tax, leaving 65 cents before federal tax applies. Applying the 40% federal rate to the remaining 65 cents results in an additional 26 cents of federal tax, bringing the total to 61 cents in tax and leaving just 39 cents of value. This combined effect is often modeled by planners to better estimate net exposure.
The financial impact of this deduction can be substantial. Suppose an estate owes $1 million in Washington estate tax and is also subject to federal estate tax. The state tax paid would reduce the federal taxable estate by $1 million, potentially saving $400,000 in federal estate tax. In this example, the total tax burden drops from a combined $2 million to approximately $1.6 million, making the federal deduction a meaningful offset, although the estate is still paying significantly overall.
Even with this deduction, the combined liability remains considerable. To reduce the overall burden, planners continue to use techniques such as grantor retained annuity trusts (GRATs), family limited partnerships (FLPs), and irrevocable life insurance trusts (ILITs). These tools help shift appreciation out of the taxable estate and provide liquidity to pay tax obligations without forcing the sale of legacy assets.
Another key planning consideration is the federal generation-skipping transfer (GST) tax. Washington imposes no separate GST tax, so gifts or bequests to grandchildren or more remote descendants are not taxed by the state beyond the ordinary estate tax. Federally, however, the GST tax applies at a flat 40% rate and carries its own exemption, which is now permanently aligned with the federal estate exemption under OBBBA.
For families seeking to preserve wealth across multiple generations, the stability of the federal exemption provides a valuable window to implement GST-efficient structures. Dynasty trusts established in jurisdictions with long or perpetual trust durations, such as South Dakota or Delaware, remain viable tools. Although Washington’s rule against perpetuities limits the duration of in-state trusts, long-term trusts located out of state and excluded from each generation’s estate may avoid both federal and Washington estate tax. For example, an irrevocable trust established for a child that avoids inclusion in that child’s estate could eliminate taxation at the state level, as Washington does not impose gift tax and only taxes estates at death.
These planning techniques—including spousal lifetime access trusts (SLATs), grantor trusts, and other irrevocable structures—often yield dual benefits under both state and federal regimes. When coordinated properly, they can prevent successive layers of estate tax while preserving flexibility and access for beneficiaries.
Finally, the rising estate tax burden underscores the importance of reviewing life insurance arrangements. ILITs remain an effective tool to keep insurance proceeds out of the taxable estate while ensuring sufficient liquidity to pay taxes, thereby preserving family assets and minimizing disruption to businesses or investments.
Business and Farm Estate Planning
Family business owners and farmers in Washington receive meaningful relief and added flexibility under the 2024 law, although thoughtful planning is still required to fully take advantage of these provisions. With the QFOBI deduction increased to $3 million, a greater portion of a qualifying family business’s value can now be sheltered from Washington estate tax. Practitioners should confirm that clients meet the requirements for this deduction, including active trade or business status, minimum ownership thresholds, and other qualifying conditions.
Trust and estate documents may need to be updated to clarify how QFOBI-designated assets are allocated or how elections will be made on the Washington estate tax return. Because the deduction is subject to a three-year continuation requirement, business succession plans should also be reviewed to ensure heirs are prepared to operate the business after the owner’s death. If continuation is uncertain, clients should consider a contingency plan for covering any recaptured tax.
For farm property, the expansion of the deduction to include qualified non-family heirs is a significant development. Many farming families rely on long-time employees or managers who are not blood relatives. The new law allows farmers to bequeath property to these trusted individuals without forfeiting the estate tax deduction, so long as the recipient meets the “material participation” requirement, which mirrors a federal standard for active involvement in farm operations. Planners may want to name such individuals explicitly in estate documents and confirm their eligibility to qualify for the deduction.
This change could also affect decisions around farm succession. If a farm owner is weighing a sale to a third party against keeping the farm in operation, the availability of a deduction that shields potentially millions in estate value may encourage the latter. This outcome aligns with the legislature’s stated goal of preserving agricultural land and promoting ongoing farming activity.
In all cases, advisors should counsel clients on the risk of recapture. If the business or farm ceases operation too soon after the owner’s death, any tax savings from the deduction will be reversed and become due. Insurance, escrow arrangements, or other contingency funding options may help manage this risk.
Overall, the new provisions relating to family businesses and farms offer expanded opportunities to reduce Washington estate tax liability. However, they demand careful estate plan drafting and diligent post-mortem administration to satisfy the eligibility requirements and preserve the benefit.
Concluding Remarks
Washington’s 2024 estate tax overhaul represents the most significant shift in over a decade. With a higher exemption and steeper rates, the law reshapes the planning landscape, relieving many moderate estates while sharply increasing the burden on larger ones. Traditional strategies such as credit shelter trusts, lifetime gifting, and irrevocable trusts remain critical tools, but their importance has grown in light of the changes.
The disconnect between Washington’s $3 million exclusion and the much larger federal exemption continues to expose mid-sized estates to state tax, even when no federal tax is due. That mismatch makes proactive, personalized planning essential. Washington’s continued lack of a gift tax preserves valuable opportunities for lifetime transfers, while the new, more progressive rate structure increases the consequences of inaction.
This law does not offer legal or tax advice in itself, but it creates a new framework that advisors must navigate carefully. Over time, practitioners will be watching to see whether these reforms prompt shifts in behavior, such as increased gifting or relocation to low-tax states, and whether lawmakers revisit key issues like portability or enacting a state gift tax. For now, estate planning professionals should act swiftly to align clients’ plans with the new rules and ensure they are taking advantage of expanded options while avoiding costly oversights.
Codification Notes
Key statutory details from ESSB 5813 (Chapter 421, Laws of 2025) and related federal legislation:
Exclusion increase and inflation indexing: Codified in RCW 83.100.020 and RCW 83.100.040, raising the exclusion to $3 million and reinstating annual CPI adjustments.
New estate tax rate schedule: Updated brackets and rates appear in RCW 83.100.040.
Expanded farm deduction and heir definition: Changes to RCW 83.100.046 include the addition of “qualified non-family heirs” for farm property transfers.
Effective dates: Law took effect May 20, 2025, upon the Governor’s signature. Estate tax provisions apply to decedents dying on or after July 1, 2025.
Capital gains tax increase: Separate provision raised the state capital gains tax rate from 7% to 9.9% on gains above $1 million. This report focuses solely on estate tax provisions.
Federal Exemption Permanency: The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, removed the scheduled reduction in the federal estate and gift tax exemption, making the higher unified exemption permanent. This federal change interacts significantly with state-level planning in Washington.
About the Author
Richard Reynolds, CVA, MAFF, is Senior Director and Head of Litigation Support at Redwood Valuation Partners. He has been involved in more than 1,500 valuation engagements over the past 14 years, focusing on estate and gift tax, economic damages, and business disputes. Mr. Reynolds holds credentials from the National Association of Certified Valuators and Analysts (NACVA) and earned his MS in Finance from Waseda University in Tokyo and his BS in Accounting from the University of Oregon. He frequently works with attorneys, fiduciaries, and high-net-worth clients nationwide, with expertise spanning estate planning, forensic accounting, personal goodwill, and the valuation of intangible assets. A regular speaker and contributor on valuation issues, Mr. Reynolds has been published in the Oregon State Bar’s Estate Planning Newsletter and has provided expert testimony on multiple engagements.
Sources
Washington State Legislature. "Chapter 83.100 RCW: Estate and Transfer Tax Act." Revised Code of Washington, 2025, https://app.leg.wa.gov/rcw/default.aspx?cite=83.100.
Washington State Legislature. "Engrossed Substitute Senate Bill 5813 (ESSB 5813), Final Bill Report." May 2025, https://app.leg.wa.gov/billsummary?BillNumber=5813&Year=2025.
Perkins Coie LLP. "Washington Tax Changes 2025: Capital Gains, Estate Tax Increases, and Wealth Tax Update." Perkins Coie Updates, June 2025, https://perkinscoie.com/insights/update/washington-tax-changes-2025-capital-gains-estate-tax-increases-and-wealth-tax.
Lasher Holzapfel Sperry & Ebberson. " New Washington Estate Tax Law Raises Exemption, Hikes Rates for Wealthy." LHSE Blog, June 2025, https://www.lasher.com/new-washington-estate-tax-law-raises-exemption-hikes-rates-for-wealthy/.
K&L Gates LLP. " Tax and Estate Planning Opportunities to Consider Now." K&L Gates Alerts, January 2024, https://www.klgates.com/Tax-and-Estate-Planning-Opportunities-to-Consider-Now-12-26-2023.
Alterra Advisors. " Should I Leave Washington State to Avoid the Estate Tax?" Alterra Advisors Articles, 2025, https://alterraadvisors.com/should-i-leave-washington-state-to-avoid-the-estate-tax/.