New Year, New Numbers. Kinda.
The first of the year ushers in an obsession with numbers: Numbers on the scale, numbers in your bank account, and for those die-hard estate tax planners, the numbers of the State and Federal estate tax exemption amounts.
To briefly explain: Your “estate tax exemption amount” is, simply put, the amount you can shield from the estate tax upon your death. There are two amounts to worry about: Your federal estate tax exemption amount (which is the amount you can shield from the federal estate tax), and the State estate tax exemption amount (which is the amount you can shield from the estate tax of the State in which you live).
Thanks to the Tax Cuts and Jobs Act of 2017, the federal estate tax exemption amount was increased in 2018 to just under $11.2m per person; in 2019, this amount increased to $11.4m per person. In practical terms, this means that if your estate is worth less than $11.4m upon your death, your estate will not owe any federal estate tax (so long as you haven’t used up all of your unified credit, which is a topic for a different day). The news gets even better for married couples, as the federal exemption amounts are portable, meaning they effectively stack on top of one another. Again, in practical terms, this means that a married couple can now collectively shield $22.8m from the federal estate tax.
For the vast majority of Americans, this means you will not have a federal estate tax issue if you die in 2019 given the high estate tax exemption amount of $11.4m per person.
The same cannot be said for those of us who live in the State of Washington.
To quote the original Bowtie Philosopher, Jack Ludwick, “Washington is a great place to live and a terrible place to die.”
We have one of the lowest estate tax thresholds in the Union: $2,193,000 per person. This means that upon your death, every dollar over $2,193,000 is subject to the Washington State estate tax. The $2,193,000 amount was the State estate tax exemption amount in 2018, and it remains unchanged in 2019.
Unlike its federal counterpart, the Washington State estate tax exemption amount is not portable, meaning there is no stacking of the amounts: The exemption of $2,193,000 has to either be used upon the death of an individual, or lost forever.
For those of you keeping score at home, Washington’s low estate tax exemption amount means that your estate could be subject to a State estate tax while simultaneously escaping the federal estate tax. For example, say your Estate is worth $3m upon your death. No federal estate tax would be owed as $3m is clearly under the federal exemption amount of $11.4m. BUT, because your Estate is over the $2,193,000.00 Washington State exemption amount, your estate would owe approximately $80,700 to the Tax Man in Olympia.
The good news is that rather than make the State a beneficiary of your hard-earned dough, there are steps you can take while alive and upon your death to minimize, if not avoid, the State estate tax. That’s where we come in.
We can use different estate planning strategies to make the most of your estate tax exemption amount(s). This might mean drafting you a Will that involves some sort of Trust; or, this could mean helping you name charitable beneficiaries to inherit from your Estate upon your death. Or, we might suggest you engage in some aggressive gifting while alive to lower the size of your Estate (without negatively impacting your quality of life).
The point is, there’s no one way to solve an estate tax problem: There’s many. But there is one way to make it worse: Do nothing.
Don’t do nothing. Give us a call today to learn more about your own numbers and how we can help them work in your favor. (425) 646-0555.