Washington State Estate Tax Law Changes: What High-Net-Worth Families Need to Know Before July 1, 2025

On May 20, 2025, new legislation was signed into law that significantly reshapes the estate tax landscape. These changes, which go into effect July 1, 2025, will have a profound impact on families, business owners, and individuals with Washington-based assets.

At TRC Financial, we work closely with high-net-worth clients and their advisory teams to stay ahead of legislation that can impact long-term financial and legacy planning. Below is a snapshot of the most important developments and proactive steps clients can take now.

Big changes are coming to estate planning in Washington State.

Estate Tax Exemption Raised to $3 Million

The Washington state estate tax exemption is increasing from $2.193 million to $3 million, allowing more wealth to be passed on without triggering state estate tax. Going forward, this exemption will also be adjusted annually for inflation.

In addition, the deduction for qualified family-owned business interests has been raised to $3 million (up from $2.5 million). This provides some relief for multigenerational family businesses - if proper planning is in place.

Washington State Estate Tax Law: Higher Estate Tax Rates for Larger Estates

The new legislation introduces steeper marginal tax rates:

• Estates valued between $1 million and $9 million will now face increased tax rates ranging from 15% to 30%.
  

• Estates exceeding $9 million will face a top rate of 35%, up from 20% - making it the highest state estate tax rate in the country.

Capital Gains Surtax Complicates Estate Planning

A new 2.9% surtax on capital gains over $1 million was also introduced, retroactive to January 1, 2025. When combined with Washington’s existing 7% capital gains tax, total state taxes on gains over $1.27 million will now hit 9.9%.

While the capital gains tax is separate from the estate tax, it adds another layer of complexity to managing estate liquidity - especially for clients planning to sell appreciated assets such as a business, real estate, or investment portfolios.

---

What You Can Do: Planning Strategies to Consider

Given the increased tax burden, families with estates exceeding $3 million, or those owning Washington-based assets, should reevaluate their estate plans immediately. TRC Financial recommends the following proactive steps:

• Update your estate plan to reflect the new exemption levels and marginal rate structure.
  

• Implement a lifetime gifting strategy to reduce the size of your taxable estate while taking advantage of current federal and state exemptions.
  

• Coordinate capital gains planning with your estate planning efforts, especially if a business sale or asset liquidation is on the horizon.
  

• Explore family-owned business deductions and determine if additional planning tools - like dynasty trusts, GRATs, or life insurance - may help reduce future tax exposure.

Next Steps

The new Washington estate and capital gains tax laws are a wake-up call for high-net-worth families to take action now. At TRC Financial, we specialize in helping clients design and implement advanced life insurance wealth transfer strategies to protect legacies and reduce tax liability.

Let’s Talk. Contact us today to schedule a confidential life insurance planning session and ensure your estate strategy is aligned with the new Washington tax landscape.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that neither TRC Financial, nor M Financial are engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. Neither TRC Financial, nor M Financial should replace those advisors.