Every year, both the federal and Washington estate tax exemptions are increased based on inflation. Here are the updated numbers for 2019:
|Washington Estate Tax Exemption||$2,193,000||$2,261,000|
|Federal Estate Tax Exemption||$11,180,000||$11,400,000|
|Annual Federal Gift Tax Exclusion||$15,000||$15,000|
Estate taxes are only paid by people whose total estate value exceeds the exemption. In Washington you will owe estate taxes only if your estate exceeds $2,261,000 in 2019. A married couple can shield up to $4,522,000 from Washington Estate Taxes, but only if they have proper estate planning. To determine whether your estate exceeds the Washington exemption amount, add up the value of everything you own including your home, bank accounts, investments, vehicles, personal property, retirement accounts, life insurance, business interests, and anything else you own. If the total number exceeds or is close to $2,261,000 it is important to ensure that your estate plan is designed properly to minimize estate taxes.
The Federal Estate tax exemption is set to rise to $11,400,000 in 2019 and will continue increasing based on inflation until 2026. This means only estates larger than $11,400,000 will pay estate taxes. However, in 2026 the estate tax exemption is scheduled to revert back to $5 million (plus inflation). Unless congress changes this structure, estates larger than $11,400,000 should consider creating an estate tax plan prior to 2026 to take advantage of the $11,400,000. The IRS just released a ruling (IRS Ruling 2018-229) stating that gifts made using the current $11,400,000 will avoid the estate tax even when the exemption drops back down to $5,000,000. This means that you either need to use your exemption by 2026 or lose it. Failing to use the larger exemption could result in up to $2,560,000 of unnecessary estate taxes. Planning ahead and crafting a strong estate plan is the best way to ensure you do not overpay estate taxes.
Estate taxes are always a moving target. Washington’s estate tax exemption currently appears to be fairly stable and for the foreseeable future will continue to be set at $2,261,000 plus inflation. The Federal Exemption, however, has been a political football and thus it is difficult to know what direction it will go. Thus, if you have a taxable estate, it is important to follow changes in the estate tax exemption and if it appears your estate may be impacted, to contact your estate planning attorney.