Happy Sunday!

First things first, sorry for taking two weeks to get this information to you. I promised to do this last week but forgot (and thanks for those who reminded me! Thanks for reading!).

Here’s how you can double your estate tax exemption from $3m to $6m, if you’re married.

Before I get into the weeds, the short answer is – you create a specific type of trust called a Credit Shelter Trust that captures both spouse’s $3m exemptions.

Ready?

Let’s go!

First, we need to understand how the WA state estate tax exemption works.

Everyone in WA (after July 1, 2025) gets $3m of exemption before they have to pay estate taxes. So, if your estate is worth $4m, for example, when you die you’ll have to pay estate tax on $1m.

If you are married, there is a second exemption – the marital exemption. This exemption is UNLIMITED – you can give as much as you want to your spouse and there is no estate tax.

But there is a catch.

When you use the marital exemption you don’t get to use your personal exemption (the $3m). You lose it.

So, what happens if you use the marital exemption is, when spouse 1 dies there is no tax, AND spouse 1’s personal exemption is not used.

AND, when spouse 2 dies, everything over $3m faces estate taxes.

We’re going to use this example throughout. Married couple with $7m in assets. In the above scenario, when spouse 1 dies, everything goes to spouse 2 and there is no tax. When spouse 2 dies, though, everything over $3m (so $4m) faces estate taxes – specifically $670,000 in estate taxes.

That’s not a best case scenario.

What would be best is if we could use spouse 1’s personal exemption, give anything over $3m to spouse 2 (so there’s no estate tax when spouse 1 dies), and use spouse 2’s exemption when they die.

Thankfully, we can – it’s called the Credit Shelter Trust.

The Credit Shelter Trust is a specific type of trust that has language in it that says “when spouse 1 dies we are going to create a separate, irrevocable trust, that is going to hold spouse 1’s personal exemption and give everything else to spouse 2.”

Because this extra trust is an irrevocable trust, when spouse 2 dies everything in that trust doesn’t count as part of spouse 2’s estate.

And you’ve effectively double the WA estate tax exemption.

Here’s the same example from above with our new setup.

Spouse 1 dies, and their $3.5m estate (half of $7m) is divided up in the following way: $3m goes into an irrevocable trust; $500k is transferred to the surviving spouse.

When Spouse 2 dies, their estate value is only $4m (their $3.5m of the total estate plus spouse 1’s $500k they transferred at death.

Estate taxes owed in this scenario = $100k.

So we saved $570k in taxes with this credit shelter trust strategy.

Now, before I let you go, there are a few frequently asked questions I’ll address here:

1. Do we have to literally split everything in half?

No. You can cherry pick what you want to go into the irrevocable trust – and will decide that AFTER spouse 1 dies.

2. Can the surviving spouse still use assets in the irrevocable trust?

Yes. They are typically in charge of those assets and they are available for the surviving spouse.

3. What can we do to pay zero taxes?

There are things you can do – but if you haven’t done step 1 yet (the credit shelter trust), there’s really no reason to think about step 2.

That’s it! Hope this helps.

Cheers,

Christopher Small
Founder/CEO
CMS Law Firm LLC

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