While the core principles of estate planning apply across the United States, Washington State has specific rules and regulations that distinguish it from other states. Whether you’re a resident or own property in Washington, understanding these nuances is crucial for effective estate planning. Here are 10 unique aspects of estate planning in Washington State:
1. Low Estate Tax Exemption - $2.193 million per person
Washington State is one of only 11 states that impose an estate tax, along with Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, and Vermont. With an estate tax exemption currently set at $2.193 million per person, effective estate planning is essential to minimize tax liability. This is especially important given the high real estate values in Western Washington, where proper planning can significantly reduce the amount your heirs may owe in taxes.
2. Portability for Spouses is Not Automatic
In Washington, preserving the $2.193 million estate tax exemption for the first spouse to die requires specific estate planning. Because portability of the exemption is not automatic, Washington requires proactive measures to avoid losing this exemption when the first spouse passes away.
Example: If a married couple with a $3 million estate (including a $1 million house, a $1 million retirement account, and a $500,000 life insurance policy for each spouse) does not plan properly, the surviving spouse could lose the first spouse’s exemption, resulting in a taxable estate and a tax liability of approximately $80,700. However, with proper planning, the first spouse’s $2.193 million exemption can be preserved, eliminating the estate tax liability altogether.
3. No State Gift Tax – But Be Careful with Low Basis Assets
Washington does not impose a state gift tax, so gifting can be an effective way to remove assets from an estate to avoid the WA estate tax. However, caution is needed when gifting low basis assets. The recipient may face significant capital gains taxes if they sell the asset later. In some cases, the capital gains tax could exceed the estate tax that would have been due if the assets had remained part of the estate. Strategic planning is essential to balance these considerations.
4. Community Property State
Washington is one of only nine community property states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Wisconsin. In a community property state, assets acquired during the marriage are presumed to be jointly owned by both spouses. One key advantage of this system is that all community property receives a step-up in basis upon the death of the first spouse, potentially reducing capital gains taxes for the surviving spouse.
5. Community Property Rights for Unmarried Couples
Washington also recognizes the concept of a Committed Intimate Relationship (CIR), which grants community property rights to unmarried couples who meet specific criteria. The existence of a CIR is determined through a multifactor analysis, and the intent or knowledge of the couple to create such a relationship is not required. Establishing a CIR can significantly impact asset distribution and the rights of each partner in the event of separation or death.
6. Small Estate Affidavit
For estates with probate assets valued at $100,000 or less, Washington offers a streamlined process through the Small Estate Affidavit. This allows heirs to transfer assets without going through probate, saving time and money. The specific requirements for using a Small Estate Affidavit are detailed in RCW 11.62.
7. Transfer on Death Deed for Real Property
Washington allows real property to be transferred upon death using a Transfer on Death Deed (TODD), as outlined in RCW 64.80. While a TODD can help avoid probate for real estate, it has limitations compared to other estate planning tools like trusts. For example, a TODD does not allow for contingency planning, so careful consideration is required to determine if this is the right approach for your estate plan.
8. Community Property Agreements
Married couples in Washington can enter into a Community Property Agreement under RCW 26.16.120, which vests property owned by the deceased spouse—both community and separate—in the surviving spouse upon the first spouse’s death. While this can simplify the transfer of assets and avoid probate, it requires careful drafting to ensure it aligns with the couple's overall estate planning goals. Transferring separate property assets to the surviving spouse could result in the loss of a tax exemption and unintended consequences for the deceased spouse's children.
9. Superwills
Washington State recognizes the concept of a "Superwill," which can override beneficiary designations on certain accounts or assets under RCW 11.11.020. This powerful tool ensures that your estate plan takes precedence, even if your account designations conflict with your will. However, Superwills must be carefully coordinated with other elements of your estate plan to avoid conflicting designations on other documents. Some argue that Superwills fall short of being a hero in the world of Washington estate planning.
10. Simplified Probate and Nonintervention Powers
Washington’s probate process is more streamlined and simplified than in many other states, making will-based estate planning a common choice. In many cases, executors are granted nonintervention powers, allowing them to manage the estate with minimal court oversight. However, probate can still be a lengthy process, often taking months or even years to complete. Probate is a public process, which means the personal financial details about the deceased’s estate become party of the public record. The cost of probate can also exceed the expenses of professional estate planning, including the creation of a revocable living trust and other necessary documents.
Conclusion
Estate planning in Washington State requires careful consideration of these unique aspects to ensure that your assets are protected, and your wishes are honored. By working with an experienced trust and estate attorney familiar with Washington law, you can create a comprehensive plan that addresses both state-specific requirements and your personal goals.
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