Estate Taxes Explained | Estate Planning TV 008

In Washington State, there are two estate taxes that can potentially be imposed on you. It doesn’t mean you get taxed twice, it just means that there are two levels of taxation that exist. There is the state estate tax and the federal estate tax.

The state estate tax has the lower threshold. It’s got the more hurtful rules and it’s the one that most people have to worry about here in Washington State. In Washington State, in 2017, the estate tax level is 2.129 million dollars. That means if you have assets under 2.129 million dollars, you don’t have to pay any estate taxes. If you have assets over this amount, you do have to pay estate taxes. The word assets include all Washington real property, retirement accounts, life insurance proceeds, investment accounts, cars and businesses. If you have a robust life insurance, you’re almost at the threshold. The first million over 2.129 million, you pay 10%. From 2.129-3.129 million, you’re gonna pay $100,000.

That next million is gonna be at 14%. If you have 4.29 million dollars in your estate, you’re going to pay $240,000 in estate taxes. And it goes up, the next million after that is 15%, 16%, 17% all the way up until you get to 20% and it’s flat 20% after that. If you’re married, there are good things and bad things about the Washington State tax. If you’re married, then when you die, you can give all of your assets to your spouse without having to pay any tax. The bad part is when your spouse dies, you’re gonna get taxed on everything over 2.129 million. You cannot give your spouse your estate tax exemption. That’s called portability. You can pay no tax at the beginning but they have to pay on everything over 2.129 million at the end. There are some estate planning things that you can do to double the estate tax exemption.

The federal estate tax starts at 5.49 million dollars in 2017. Anything over 5.49 million dollars, you’re paying 40% on. That is combined. Whatever you’re paying in Washington State, you subtract 40 from that so your total estate tax over 5.49 is gonna be 40%, significant. You can fix that too. The great thing about federal estate tax is you do have portability. By checking a box on a tax form, you can give your estate tax exemption to your spouse. So in reality, if you’re married your federal estate tax is not gonna start until you get to 10.98 million dollars. For most people, that is a number that is pretty far off. In federal estate tax, your assets essentially include everything. If you have foreign property, foreign business, and all the properties and business in the United States that you own, it counts.

Those are the basic things about estate planning. It’s really important to calculate what your total assets are correctly so you can determine what your taxes are so you can strategize and plan to reduce those taxes as much as possible, still live an amazing life and have a lot of fun and do the things that you want to do but not to have to pay Uncle Sam a ton of money when you die.

Christopher Small is the owner of CMS Law Firm LLC a Bellevue estate planning law firm. Click here for a free strategy session.