I had a client recently hire the firm because his father had passed away. He had a will and that was it.
He thought it would be a simple probate to pay any outstanding debts and then distribute the assets.
And I thought the same thing too, until he told me how big his estate was.
“Remember, you have to add up everything: real estate; investment accounts; retirement accounts; life insurance proceeds; cash; and anything else of value,” I said.
“Oh,” he said, “in that case we’re at about $4 million dollars.”
“That changes things a little,” I said.
“Not only does it make the estate more complicated, but a significant portion of your estate is going toward paying estate taxes.”
“About how much?” he said.
“The rough calculation is $245,000.”
What’s the moral of the story? Estate taxes are no joke.
A New Year Means New Estate Tax Rates
Just about the only good news when it comes to estate taxes is that the exemption amounts (the amount you get to keep before you start paying taxes) rises every year to adjust for inflation.
The bad news is that for many people in Washington State that minimal increase doesn’t make a significant difference.
They say knowledge is power, though, and if you don’t know the tax rates, just like if you don’t know your own numbers, you’re basically like a car with no steering wheel or brakes.
Here are the numbers.
Federal Estate Tax Numbers for 2017
When it comes to federal estate tax exemption rates there is good news and bad news.
The good news is the exemption itself started out pretty high – $5.45 million.
The other good news is if you are married you can basically give your exemption to your spouse – translation: you’re not paying estate taxes until you hit $10.9 million in assets if you’re married.
Now the bad news, which isn’t really that bad. The exemption this year is only going up $40,000.
Instead of $10.9 million we’re now at $10.98 million.
I guess we’ll just have to take what we can get.
Oh, and for posterity’s sake, if you’re over $10.98 million in your taxable estate your paying a 40% tax.
That is not a misprint…
Washington State Estate Tax Rates for 2017
I thought I’d start this part of the post off by confusing you, so below are a couplf of charts outlining the Washington State Estate Tax Exemption for 2017.
First, the easy one – the exclusion amounts.
Allow me to translate for you:
- You don’t even have to file an estate tax return in Washington State unless you have more than $2 million in assets in your estate;
- You don’t start paying any estate taxes until your estate assets exceed $2.129 million (said another way – $2,129,000).
Okay, now let’s get in the weeds. Here is the table for computing the Washington State Estate Tax.
Confused? Me too.
I’m kidding. I’m not confused. This is what I do.
Here’s your translation.
First, where it says Washington Taxable Estate is between $0 and $1,000,000 that means the first million OVER $2.129 million.
What that says is for that first million there is no initial tax rate but on that first million you are going to pay 10%.
Second translation – on the first million of your assets over $2.129 million you are going to pay $100,000 in taxes.
If this doesn’t justify spending $5,000 or so with me to eliminate that $100,000 then I don’t know what does…
The next box covers the second million over $2.129 – and you’re going to pay 14% on that.
Translation: if your estate is $4.129 million you are going to pay $240,000 in estate taxes.
That’s real money.
Each box after that covers the next million up to $9 million over $2.129 million, at which point you are paying a flat 20% tax.
One More Piece of Bad News for Washington State Estate Tax
There’s one thing I forgot to mention when it comes to the Washington State Estate Tax: there is no portability.
Remember when I said earlier if you are married your $5.49 million is really $10.98 million because you can give your spouse your $5.49 million?
You can’t do that in Washington State.
That doesn’t mean you are out of luck, it just means you have to actually prepare to double your estate tax exemption.
One More Estate Tax Break Update – Annual Gift Exclusion
This actually isn’t much of an update because nothing has changed, although it’s important to know that.
In addition to those end of life exemption amounts we just outlined above, each of us is allowed to give away gifts each year up to an amount without having to whittle away at our big exemption amount or incur any other tax liability.
In 2014 that amount was $14,000.
In 2017 that amount remains $14,000.
Although there is no change, you can still give $14,000 away to as many different people as you want (and each spouse has their own $14,000 to give away).
That can add up fast if it needs to.
Christopher Small is the owner of CMS Law Firm LLC and an estate planning lawyer. He is a speaker, a blogger, a husband, a father, a golfer, and really good at helping people create the life of their dreams.
At CMS Law Firm we do more than just estate planning. Our goal is to help you live a rich life and leave a rich legacy.
Multiplying your wealth and creating generational wealth are some things we’re really good at.
Here you can expect to find information on estate planning, financial planning, productivity, finance, self-improvement, family protection, tax avoidance, and anything else Christopher thinks will help improve your quality of life (and after-life).