Happy Sunday!

Hope you had a chance to eat all the Turkey. But turkey day is over – time to talk tax!

Last week I was talking with some clients who’d done their estate planning several years ago and were not over the WA state estate tax threshold (we’ll talk numbers in a sec).

I explained to them a common strategy to provide some more room before tax savings, and they asked me if I had any additional info they could look at.

I didn’t have anything written (I’ve made some videos on it) so I decided to kill two birds with one stone – and everyone gets to benefit!

Okay, let’s get into it.

WA residents have two estate taxes (taxes owed on your assets when you die) to worry about:

1. Federal; and
2. Washington State

Each entity sets their own exemption amount (you don’t pay tax until you are OVER these amounts):

1. Federal = $15m (in 2026)
2. Washington State = $3m (in 2025 – not yet set for 2026)

You might immediately notice there’s a big difference in those two numbers.

And, there’s also a HUGE difference in what happens with each exemption if you are married.

With the federal exemption, when a spouse dies, they can give their exemption to the surviving spouse by filing a simple form with the IRS – this is called “porting” your exemption.

So, basically, if you’re married you have $30m of room before you pay estate taxes.

Washington State, though, is different.

There is NO portability in WA. If you don’t use it, you lose it.

So, how do you do that?

The credit shelter trust.

This is a revocable trust that has some extra bells and whistles, all designed to capture that first spouse’s estate tax exemption.

Here’s how it works:

1. When spouse one dies the trust directs that a second, irrevocable trust be created for the deceased spouse’s estate tax exemption;
2.  The surviving spouse is the Trustee AND beneficiary of the trust (translation = they maintain complete control over the trust) and gets to choose what to put into the trust;
3. Because the new trust is irrevocable, it does not count as part of the surviving spouse’s estate when they die.
4. Result? You’ve used the first spouse’s estate tax exemption at their death, and the surviving spouse’s exemption is used when they die.

Make sense?

Here’s a quick example.

Let’s say a married couple has $6m in assets.

Scenario 1: they do nothing.

When spouse 1 dies, nothing happens (you can defer any taxes owed until the second spouse dies).

When spouse 2 dies, $420,000 in estate taxes is owed.

Scenario 2: they create a credit shelter trust.

When spouse 1 dies, $3m goes into the newly created irrevocable trust. No tax owed at that time.

When spouse 2 dies, their taxable estate is only $3m (not $6m like scenario #1) so NO TAXES ARE OWED!

Zero.

Hope that made sense. You now know more about WA estate taxes than 99% of people. :)

Have a great week!

Cheers,

Christopher Small
Owner
CMS Law Firm LLC

PS – we love referrals! If you know someone that could use our help, please let them know about us!

PPS – ANNOUNCEMENT – our last in person signing day of the year for our Kent office will be December 18; for our Kirkland office – December 22!