Many people are concerned about planning to avoid estate taxes. There are various technical concepts and terms to understand when considering estate planning for taxable estates. Below are descriptions of common tax concepts and an example of how tax planning can impact a married couple living in Washington State.
Your Taxable Estate
For federal and state estate tax purposes, each person has a “taxable estate.” Generally, everything an individual owns or has the power to control is included in their taxable estate. This includes cash, real estate, stocks, bonds, other investments, personal property, retirement savings, life insurance, and business interests.
While each individual has a taxable estate, estate planning for married couples typically considers their combined taxable estate.
The value of an individual's taxable estate is calculated by determining the fair market value of all assets and subtracting the fair market value of all debts. If the value of the taxable estate exceeds available exclusions and deductions, estate taxes may be owed at death.
Federal Estate Taxes and Exclusion Amounts
Each person can transfer a certain amount of their taxable estate without paying federal or state estate tax. This amount is called the lifetime exclusion amount.
- In 2025, the federal exclusion amount is $13,990,000 per person, or $27,980,000 for a married couple.
- In 2026, this amount increases to $15,000,000 per person, or $30,000,000 for a married couple.
In addition to the lifetime exclusion amount, the annual exclusion amount allows an individual to give a certain amount to another person each year without triggering gift tax or IRS filing requirements. In 2025, the annual exclusion amount is $19,000 per person.
The federal lifetime exclusion amount is reduced by large gifts made during a person’s lifetime and is subject to cost-of-living adjustments each year.
Generally speaking, if a person transfers assets worth more than their federal exclusion amount, the amount exceeding the exclusion is subject to a 40% federal estate tax rate.
Federal Exclusion Amounts – Portability
If a spouse dies and leaves behind assets worth less than the federal exclusion amount, the unused portion of that exclusion may transfer to the surviving spouse. This concept is called portability.
The surviving spouse can use the unused exclusion to avoid paying federal gift tax on lifetime gifts or to reduce estate tax owed when they pass away.
However, if the surviving spouse remarries and the new spouse dies before the survivor uses the transferred exclusion, the unused exclusion from the first spouse may be lost.
State Estate Taxes and Exclusion Amounts
As of 2025, the following states and the District of Columbia have state estate taxes:
- Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.
State estate taxes are separate from federal estate taxes and apply to estates exceeding a specific value. The amount owed varies by state and depends on the value of the estate.
If you live in one of these states, you may need to consider planning strategies to reduce the impact of state estate taxes.
Because federal and state exclusion amounts are often different and change over time, estate planning must remain flexible enough to account for both systems. Most states do not allow portability of exclusion amounts between spouses.
Marital Deduction
Under both federal and state estate tax laws, a married person can transfer property to their surviving spouse without paying estate tax and without using any estate tax exclusions. This is known as the unlimited marital deduction.
For the deduction to apply, property must be transferred to the surviving spouse in specific ways:
- If property is given directly to the spouse, it qualifies for the deduction.
- If property is given to a trust for the spouse, the deduction only applies if the trust follows certain rules. The surviving spouse must be the sole beneficiary and must receive all income from the trust each year.
A trust that meets these requirements is called a Qualified Terminable Interest Property (QTIP) Trust, also sometimes called a Marital Trust.
All assets owned by the surviving spouse, including those inherited tax-free from the deceased spouse, are included in the surviving spouse’s taxable estate. Whether estate taxes will ultimately be owed depends on the exclusion amounts and tax laws in effect at that time.
Using the unlimited marital deduction may delay estate taxes, but it does not necessarily eliminate them.
Planning Example – Washington Residents
In Washington State, the estate tax exclusion amount is $3,000,000 per person. With proper planning, a married couple may be able to exclude up to $6,000,000 from Washington estate taxes.
The Washington exclusion is not reduced by lifetime gifts and does not adjust for inflation. Assets exceeding the exclusion amount may be subject to Washington estate tax at rates of up to 35%.
Example 1: $14 Million Taxable Estate — No Tax Planning in Estate Plan -
For those dying before July 1, 2024
- Husband and Wife have joint assets totaling $14 million. Each spouse controls $7 million of the assets.
- Husband leaves his $7 million outright to Wife.
- Wife already owns $7 million of her own assets. After inheritance, her taxable estate totals $14 million.
- The transfer from Husband to Wife is not subject to estate tax because it qualifies for the unlimited marital deduction.
- After some time, Wife dies and leaves everything to their children with a taxable estate of $14 million.
Federal tax result:
Because Husband transferred everything outright, his estate likely elected portability, transferring his unused exclusion to Wife. This allows Wife to exclude up to $27.2 million from federal estate tax, meaning no federal estate tax is owed.
Washington State estate tax result:
Washington does not allow portability. Wife’s taxable estate is $14 million. With a Washington exemption of $2.193 million, $11.807 million is subject to Washington estate tax.
Estimated Washington estate tax due: approximately $2,120,000.
Example 2: $14 Million Taxable Estate — Tax Planning Included in Estate Plan
For those dying before July 1, 2024
- Accounting for state estate taxes in their estate planning documents saves roughly $390,000.
Husband and Wife have joint assets totaling $14 million. Each spouse controls $7 million. - Husband leaves his $7 million using a tax formula that sends:
- The Washington exclusion amount ($2.193 million) to a testamentary trust for Wife
- The remaining $4.807 million directly to Wife
- Wife already owns $7 million of assets. After inheritance, her taxable estate totals $11.807 million.
- The transfer still qualifies for the unlimited marital deduction.
- Later, Wife passes away and leaves everything to their children.
Federal tax result:
Portability allows Wife to exclude up to $27.2 million from federal estate taxes, meaning no federal estate tax is owed.
Washington State estate tax result:
Wife’s taxable estate is $11.807 million. After subtracting the $2.193 million Washington exemption, $9.614 million is subject to Washington estate tax.
Estimated Washington estate tax due: approximately $1,730,000.