Washington State Estate Tax Update: Small Exclusions Require Creative Solutions
November 03, 2025
by Joseph Berg, CPA, MS. Tax
photo: © iStock/bymuratdeniz
Major changes to Washington state's estate tax, effective July 1, 2025, are set to reshape estate planning strategies for residents and nonresidents alike. Under the new legislation, the estate tax exclusion increases from $2.193 million to $3 million, providing some relief to moderate estates. However, this is counterbalanced by a significant rise in the top estate tax rate from 20% to 35%, cementing Washington’s position as the state with the highest estate tax rate in the nation. These updates make proactive estate planning not just advisable, but essential.
Understanding the Washington Estate Tax
For Washington residents, the estate tax applies to all property located within the state and all intangible property, regardless of where it’s located, if the decedent resided in Washington. However, real and tangible personal property located outside the state is excluded. For nonresidents, the estate tax applies only to real and tangible personal property physically located in Washington at the time of death.
Apportionment of the New $3 Million Exclusion
The new $3 million exclusion is still subject to apportionment if an estate contains both Washington and non-Washington property. Generally, the exclusion is reduced based on the ratio of non-includable (out-of-state) property to the total estate. According to the Washington Department of Revenue, the estate tax exclusion for decedents with out-of-state property is calculated by multiplying the gross taxable estate by an apportionment factor (value of Washington property / total gross estate).
In most scenarios, shifting as much value as possible outside Washington’s taxable reach is advantageous, thereby reducing the state estate tax due.
Trusts and Strategic Investments
The treatment of assets under Washington estate tax law depends on the property type and the decedent's location or domicile (WAC 458-57-025). Tangible personal property and real estate are sourced to where they are physically located, while intangible property is sourced to the decedent’s domicile. For assets held in trust, however, state law clearly states to look through the trust to the physical location of the underlying assets.
Parking assets in trusts is not a new strategy for estate planning, however, that has historically applied to real and other tangible personal property, doing little for the decedent’s investment portfolio or loose cash. Shifting a client’s portfolio to grantor trusts with underlying assets outside of Washington state would drastically reduce the value of their Washington taxable estate, without the headache of investing directly in real property to achieve the same effect.
One example of an investment that offers a unique advantage is the SPDR Gold Trust ETF (GLD). Classified as a grantor trust under CFR § 301.7701-4(c), GLD investors are treated as holding a direct beneficial interest in the underlying physical gold. Since the gold is stored in HSBC’s London vault, shifting investments to GLD can effectively reduce the value of a decedent’s Washington taxable estate, leading to significant state estate tax savings.
Planning Pitfalls
Just as some investments can reduce Washington estate tax exposure, others can unintentionally increase it. For example, nonresidents who hold investments in some Real Estate Investment Trusts (REITs) or Delaware Statutory Trusts (DSTs) that own property located in Washington may find themselves subject to Washington estate tax on those interests that exceed their apportioned Washington state exclusion. It’s critical to analyze the underlying assets of any trust or fund to ensure they don’t inadvertently create an estate tax liability.
Final Thoughts
The upcoming changes to Washington’s estate tax will require many people to reevaluate their estate planning efforts. The increased exclusion offers some breathing room, but the steep rise in the top tax rate could significantly affect larger estates. By carefully choosing the location of assets and the types of investments held in trusts, it is possible to reduce the taxable portion of an estate and preserve more wealth for heirs.
Joseph Berg, CPA, MS. Tax, is a tax associate with Aldrich in Spokane, Washington. You can contact Joseph at joe.berg@aldrichadvisors.com.