On May 20, 2025, Washington Governor, Bob Ferguson, signed new tax legislation that will have a significant impact on estate planning for clients in the state. These changes—which include both a higher exemption amount and steeper tax rates for larger estates—will take effect on July 1, 2025. Here’s what financial advisors should know to guide clients effectively.
What’s Changing?
Higher Estate Tax Exemption
Effective July 1, 2025, the estate tax exemption will increase from $2.193 million to $3 million. This means that the first $3 million of an estate’s value will be exempt from Washington’s state estate tax. For many clients, this increase offers additional room to pass wealth to heirs without incurring state-level estate taxes. The exemption amount will also be adjusted annually for inflation. The legislation also increases the state qualified family-owned business interest deduction to $3 million from $2.5 million.
Steeper Tax Rates for Larger Estates
While the higher exemption is welcome news for smaller estates, larger estates will face higher tax rates under the new legislation:
- Estates exceeding $9 million will be taxed at a rate of 35%—up from the current top rate of 20%.
- Estates valued between $1 million and $9 million will see marginal rates increasing on a graduated scale, ranging from 15% to 30%, depending on the estate’s taxable value.
| Taxable Estate Value in Washington | Current Tax Rate | New Tax Rate (Effective July 1, 2025) |
| $0 – $1M | 10% | 10% |
| $1M – $2M | 14% | 15% |
| $2M – $3M | 15% | 17% |
| $3M – $4M | 16% | 19% |
| $4M – $6M | 18% | 23% |
| $6M – $7M | 19% | 26% |
| $7M – $9M | 19.5% | 30% |
| $9M+ | 20% | 35% |
Washington’s Capital Gains Tax: An Additional Planning Consideration
Effective retroactively to January 1, 2025, Washington now imposes an additional 2.9% surtax on capital gains exceeding $1 million per year. This is on top of the existing 7% tax on long-term capital gains over $270,000 (2024 inflation-adjusted amount). As a result, gains over $1 million will now be taxed at a combined state rate of 9.9%.
While the capital gains tax is separate from the estate tax, it’s an important planning consideration for high-net-worth clients. Large capital gains may reduce estate liquidity and potentially influence how clients structure wealth transfers and trust funding.
Why This Matters to Your Clients
Washington is one of several states that imposes a separate estate tax in addition to the federal estate tax. In addition to the federal estate tax at 40% for taxable estates greater than $13.99 million for 2025, larger estates will be subject to both the federal tax and the highest state estate tax rates in the country. For Washington clients with estates exceeding $3 million, it’s essential to:
- Review existing estate plans and trust structures to ensure they align with the new exemption amount and higher rates.
- Consider lifetime gifting strategies to reduce the taxable estate before death. Remember, Washington does not tax lifetime gifts, offering a powerful planning opportunity.
- Integrate capital gains planning with estate tax mitigation strategies, especially for clients with taxable estates or those anticipating a large transaction, like the sale of a business.
- Explore family-owned business deductions and other planning strategies to manage the potential tax impact.
Stay Ahead of the Curve
At Wealth.com, we understand that staying ahead of legislative changes is crucial to delivering exceptional service to your clients. To review the new legislation in full, click here.
Curious how to bring estate planning into your practice or how these changes could impact your clients? Book a demo to see how Wealth.com can help you deliver deeper value through modern, compliant estate planning. Our platform’s tools make it easy to integrate these changes into your clients’ estate plans, ensuring they remain aligned with the latest tax laws.
