Washington's estate tax applies only to the largest estates, and several legal methods can reduce what your heirs owe

Washington State's estate tax hits estates worth more than $2.193 million (as of 2024, adjusted yearly for inflation). If your estate falls below that threshold, you owe nothing. If it exceeds the threshold, only the amount above it is taxed, at rates starting at 10% and rising to 20%. The tax is separate from federal estate tax — you may owe both, one, or neither depending on your estate size and the year of your death.

The most direct way to reduce estate tax is to shrink your taxable estate before you die. This means moving money or property out of your name through gifts, trusts, or specific accounts during your lifetime. Each method has different rules about timing, amounts, and what you give up in return. Some strategies also affect your federal taxes or your heirs' ability to sell inherited property without capital gains tax, so the right choice depends on your full financial picture.

Key Takeaways

  • Washington's estate tax threshold is $2.193 million in 2024 and increases each year with inflation, so many estates never owe it.
  • Lifetime gifts reduce your taxable estate dollar-for-dollar, though federal gift tax rules limit how much you can give away tax-free each year.
  • An irrevocable life insurance trust (ILIT) removes life insurance proceeds from your taxable estate if set up correctly and before you become terminally ill.
  • A may have access to personal residence trust (QPRT) lets you live in your home for a set term, then transfer it to heirs at a reduced gift tax value.
  • Spousal transfers and charitable gifts are not counted in your taxable estate at all, though spousal transfers only work if your spouse is a U.S. citizen.

Lifetime gifts and the annual exclusion

You can give away money or property during your lifetime without triggering Washington estate tax. The federal government sets an annual exclusion: in 2024, you can give up to $18,000 per person per year without filing a gift tax return or reducing your lifetime exemption. If you are married, you and your spouse can each give $18,000 to the same person, totaling $36,000 per year per recipient.

These gifts are permanent reductions to your taxable estate. If you give $36,000 per year to each of your three children for ten years, you have moved $1.08 million out of your estate without owing any tax. The annual exclusion amount changes yearly — the IRS announces the new figure in October for the following year. Gifts above the annual exclusion do not trigger when ready tax, but they do count against your lifetime federal gift and estate tax exemption, which is much larger ($13.61 million in 2024) but may shrink after 2025.

Gifts must be completed during your lifetime to count. A promise to give money in your will is not a gift for tax purposes — it is part of your estate. You also cannot give away something and keep using it. For example, if you transfer your vacation home to your child but continue to live there rent-free, the IRS may treat it as still part of your estate.

Irrevocable life insurance trusts (ILITs)

Life insurance proceeds are normally part of your taxable estate, which can be a surprise to people who think insurance is separate from their estate. If you own a $1 million policy and die, that $1 million is added to your estate value for tax purposes. An irrevocable life insurance trust (ILIT) removes the policy from your estate by having the trust own it instead of you.

The trust must be set up before you become terminally ill, and you cannot be the trustee or have the power to change the trust terms — that is what "irrevocable" means. You fund the trust with gifts (which count toward your annual exclusion), and the trust buys and owns the policy. When you die, the insurance payout goes to the trust, not your estate, and is not subject to estate tax. The trust can then distribute the money to your heirs or hold it for them.

The main drawback is loss of control. Once the trust is signed, you cannot change your mind, borrow against the policy, or cancel it. You also cannot be the trustee, so you must name someone else to manage it. An ILIT works best if you are certain you want the insurance to go to specific heirs and you do not need access to the policy's cash value.

may have access to personal residence trusts (QPRTs)

A may have access to personal residence trust (QPRT) is a way to transfer your home to your heirs at a reduced gift tax cost while keeping the right to live there for a set number of years. You transfer the home into the trust and retain the right to live in it for, say, ten years. After that period ends, the home belongs to your heirs outright.

The gift tax value of the transfer is reduced because you are keeping a right to use the property for years. The IRS calculates this reduction using interest rates and life expectancy tables. If you transfer a $500,000 home into a QPRT with a ten-year term, the gift tax value might be only $300,000, saving you $200,000 in gift tax value. That $200,000 stays out of your taxable estate.

The catch is timing: if you die before the trust term ends, the entire home value goes back into your estate, and the QPRT provides no tax benefit. You must outlive the trust term for it to work. Additionally, your heirs receive the home at its value when you transfer it into the trust, not its value when they inherit it, so they do not get a "step-up" in basis for capital gains tax purposes — they may owe capital gains tax if they sell it later for more than you paid.

Spousal transfers and portability

Any gift to your spouse who is a U.S. citizen is not counted in your taxable estate, no matter the size. This is called the unlimited marital deduction. You can transfer millions to your spouse during your lifetime or through your will without owing estate tax.

When your spouse dies, their estate is taxed separately. If your spouse's estate is also large, they will owe tax on amounts above their own threshold. However, if your spouse dies after you, they can use "portability" — a rule that lets them use any unused portion of your federal estate tax exemption. This means if you die with a $13.61 million exemption and use none of it (because everything went to your spouse), your spouse can use your unused $13.61 million plus their own $13.61 million, totaling $27.22 million in federal exemption.

Portability requires your executor to file a federal estate tax return (Form 706) even if your estate owes no tax. If you skip this step, your spouse loses the benefit of your unused exemption. Washington State does not have portability — it has its own separate threshold — but the federal benefit is valuable for large estates.

Charitable gifts and donor-advised funds

Gifts to may have access to charities are not counted in your taxable estate. If you donate $100,000 to a nonprofit during your lifetime or through your will, that $100,000 is removed from your estate value. You also receive an income tax deduction for the gift in the year you make it.

A donor-advised fund (DAF) is a way to get the tax deduction when ready while spreading out your charitable giving over time. You donate a lump sum to the DAF, receive an income tax deduction for the full amount that year, and then recommend grants to charities over the following years or decades. This is useful if you want to reduce your estate now but have not yet decided which charities to support.

Charitable remainder trusts (CRTs) are more complex: you transfer property to a trust, receive income from it for life or a set term, and the remainder goes to charity. You get an income tax deduction for the present value of what the charity will eventually receive, and the property is removed from your taxable estate. This works well if you own appreciated property (like stock or real estate) that you want to sell but do not want to trigger capital gains tax.

Trusts and entity structures

A revocable living trust does not reduce your taxable estate — property in the trust is still part of your estate for tax purposes because you can change or cancel the trust anytime. However, it does avoid probate and keep your affairs private, which are separate benefits.

An irrevocable trust, by contrast, removes property from your estate permanently. Once you transfer property into an irrevocable trust and sign away the power to change it, that property is no longer yours for tax purposes. The downside is the same as with an ILIT: you lose control and cannot change your mind. Irrevocable trusts are useful only if you are certain about the arrangement and do not need access to the property.

Limited liability companies (LLCs) and family partnerships can also reduce estate value through "discounts." If you own 100% of an LLC worth $1 million and transfer 40% to your children, the 40% stake may be valued at less than 40% of $1 million because a minority stake in a private company is worth less per dollar than a controlling stake. The discount depends on the company's structure and the appraiser's judgment, and the IRS scrutinizes these discounts closely.

Timing and professional guidance

Estate tax planning works best when started years before death, not months. Gifts take time to reduce your estate, trusts must be drafted and funded correctly, and some strategies require you to survive a waiting period. If you set up an ILIT and die within three years, life insurance proceeds may still be included in your estate under the "incidents of ownership" rule.

Washington State does not tax gifts during your lifetime, only the estate after death. However, federal gift tax rules explore to large gifts, and state income tax may explore to trusts depending on where they are managed. The interaction between state and federal taxes, and between estate tax and capital gains tax, is complex enough that most people benefit from consulting a tax attorney or estate planner before making large transfers.

Your plan should also account for changes in tax law. The federal estate tax exemption is scheduled to drop from $13.61 million to roughly $7 million per person in 2026 unless Congress acts. Washington's threshold may also change. A strategy that makes sense today might need adjustment in a few years.

Frequently Asked Questions

Does Washington State have an estate tax exemption like the federal government?

Yes. Washington's threshold is $2.193 million in 2024, adjusted upward each year for inflation. Estates below this amount owe no Washington estate tax. The federal exemption is much higher ($13.61 million in 2024) but is scheduled to drop significantly in 2026 unless Congress extends it.

Can I reduce my estate by giving money to my children every year?

Yes. You can give up to $18,000 per child per year (in 2024) without filing a gift tax return or owing tax. Married couples can give $36,000 per child per year. These gifts are permanent reductions to your taxable estate and are one of the simplest strategies.

What happens if I die before my QPRT term ends?

The entire home value is included in your taxable estate, and the QPRT provides no tax benefit. You must survive the trust term for the strategy to work. This is why QPRTs are best for people in good health with a reasonable life expectancy beyond the term.

Do I owe federal estate tax if I only owe Washington estate tax?

Not necessarily. Your federal exemption is separate and much higher. You could owe Washington estate tax but no federal tax if your estate is between $2.193 million and the federal threshold. However, large estates may owe both.

Is a revocable living trust a good way to avoid estate tax?

No. Property in a revocable trust is still part of your taxable estate because you can change or cancel the trust anytime. A revocable trust is useful for avoiding probate and privacy, but not for reducing estate taxes. You need an irrevocable trust or another strategy for that.