Death Taxes: Where We Are Headed

Death Taxes: Where We Are Headed
Death Taxes: Where We Are Headed

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Tax laws are in constant flux, and can have a significant effect on your estate planning needs. This goes doubly so for large estates. While it is wise to consult an accountant on the minutiae, we thought it best to discuss two prominent tax exemptions, and their influence on your estate planning. They are the Washington State Estate Tax Exemption, and the Federal Estate and Gift Tax Exemption.

Before we begin exploring these two exemptions, let’s discuss what they are. An estate tax is a tax levied on money and property left to heirs upon an individual’s death. A gift tax is a tax levied on money or property given from one living individual to another. A tax exemption is how much money or property one can transfer to heirs or to another living individual before those amounts begin to be taxed.

So where are we now? Well, for a couple years we’ve hovered around the same amount for both exemptions.

The Federal Estate Tax Exemption and Federal Gift Tax Exemption have been combined: any money or property transferred either way takes exemption credit from the same pot. However, that pot is large. As of 2021, having been adjusted for inflation, it is $11,700,000 per person.

The Washington State Estate Tax Exemption has remained steady at $2,193,000 per person.

However, these amounts are intended to change year after year, and can vary greatly depending on the political landscape.

A few things can happen in the case of the Federal Estate and Gift Tax Exemption. Left alone, the amount will revert to the much lower pre-2018 levels, indexed for inflation. However, other changes are possible: the estate and gift tax exemptions may be separated, the exemption amount (whether together or separate) maybe reduced sooner and by more, and the tax rates may increase.

Nothing is solidly in the works to dramatically change the Washington State Estate Tax Exemption. If anything, it will continue to increase with inflation.

What should you do about it? Well, this is a short summary of a highly complex topic. It is always best to review your unique circumstances with your estate planning attorney, tax professional, and financial advisor, in order to implement the right plan for you.

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