Death Tax(s)

The 2010 Tax Relief Act (ATRA) provides relief from the uncertainty I discussed in my Article in August of 2010 and 2012. For decedents dying in 2015 non-spousal heirs inherit up to $5.43 million Estate Tax exempt with the surplus at a 40% top tax rate and a full step up in basis of all assets. Spouses continue to have an unlimited exemption from Estate Taxes. The exemption is indexed for inflation. The unused portion of a spouse's exemption is portable to the estate of the second spouse to die if the election is made by filing a 706 estate tax return within 9 months of the first spouses' death.

The present Washington State inheritance tax exemption is $2,054,000. There is a 14% tax from $2,054,000.00 until $11.0 million when the tax increases incrementally increases to 20%. The Federal Estate tax is in addition to the State tax For those estate plans that tie the amount of funding of a credit shelter trust to the federal exemption, the heirs could find themselves having to pay a Washington Estate Inheritance tax for the amount over $2,054,000.00 upon the first spouse's death. This is one risk in "formula gifts" that could cause unintended tax consequences as well as skewing the intended gift to various beneficiaries, particularly in blended families.

How do these tax laws affect me?

  1. If you have $2,054,000.00 or less this situation will probably not impact your heirs, but be aware of future tax law changes.
  2. If you have a current estate over $2,054,000.00 and an Estate plan that established a Credit Shelter Trust (CST) to maximize federal tax exemptions for a married couple in a "formula gift" manner that plan could cost the surviving spouse tax. You should also have any QTIP marital trust reviewed to determine the effect of HB 1920 that passed the Washington State Legislature. Yes; this is complicated and best reviewed by your tax professional.

I must add a disclaimer to be fair. This is a short article of a highly complex topic. Your specific intent combined with your circumstances must be independently reviewed by you with your Estate Planning Attorney to implement an Estate Plan.