Everyone always wants to know how to reduce taxes, so I thought this week I’d remind you of the first way to zero out your WA state estate tax, if you’re married.

You ready? Let’s go!

First things first, it’s important to know when you have to start paying estate taxes.

That magic number is $2.193m – and has not adjusted for inflation in many many years.

Second, it’s important to know that if you are married, you do NOT have two $2.193m exemptions to work with. You only have 1.

Here’s why.

When spouse 1 dies, presumably everything goes to spouse 2.

No tax is due at that time no matter the number (it’s just a rule).

When spouse 2 dies whatever assets are in their name are counted, including whatever they get from spouse 1, and everything over $2.193m is taxed.

Make sense? Perfect!

For that reason, the FIRST step to zeroing out your WA estate tax if you are married is to figure out a way to capture that $2.193m that is lost when the first spouse dies.

The way you do that is with a special type of revocable trust called a credit shelter trust.

While both spouses are alive it operates just like a regular trust.

But, when the first spouse dies, something happens.

At that time a second trust is created – an irrevocable trust (it can’t be changed once created).

That trust is funded with spouse 1’s $2.193m – the rest goes into the name of the surviving spouse.

The surviving spouse is in charge of the assets in that irrevocable trust, BUT, when the surviving spouse dies, the assets in the irrevocable trust are not counted as part of the estate.

What does that mean in real life?

When spouse 2 dies you have $2.193m sitting in an irrevocable trust that is not subject to WA state estate tax AND you have spouse 2’s $2.193m they get to use before taxes are to be paid.

Translation – you don’t start paying estate tax until you get to $4,386,000 in assets.

One more translation – you save about $240,000 in taxes.

Hope that made sense.

That’s it for today.

Have a great week!

Cheers,

CMS Law Firm LLC

PS – don’t keep this estate planning stuff to yourself – you know it’s important and we LOVE referrals!