Update – Relevant Changes to Washington Estate and Capital Gains Taxes and Federal Estate Tax

Updated July 14, 2025

Washington Updates

Washington’s recent legislative session ended with a sweeping package of tax legislation, introducing some of the largest tax increases in state history. In part, on May 20, 2025, Governor Ferguson signed into law Engrossed Substitute Senate Bill 5813 (Final Bill Report ESSB 5813), which made significant changes to Washington’s estate tax rates/exemptions and long term capital gains tax, further outlined below.

ESSB Impact on Washington Estate Tax

ESSB 5813 both modified the Washington estate tax exemption and increased the estate tax rates for decedent’s dying on or after July 1, 2025.

First, let’s start with the good news. The law increased the Washington estate tax exemption (i.e. the amount set by the State of Washington that determines how much can be transferred at death (generally to anyone other than a spouse or qualifying charity) without incurring state estate tax) from $2.193 million to $3 million for decedent’s dying on or after July 1, 2025. The law also provides guidance on annual inflation adjustments to the estate tax exemption, which will begin in 2026.

Next, the not so good news. While the Washington estate tax exemption increased, so did the tax rates that a decedent’s estate will be subject to after July 1, 2025. Under the previous law, the initial tax rate was 10% for the first $1 million of a decedent’s taxable estate (i.e. amounts after applying the applicable Washington estate tax exemption) and incrementally increased to a top rate of 20% for amounts exceeding $11.193 million. Now, however, while the new law still starts out at the 10% initial tax rate for the first $1 million of a decedent’s taxable estate, the top rate increased dramatically to 35% for amounts exceeding $12 million. The tax rates for interim amounts also increased, shown in the chart below:

While ESSB 5813 will result in an estate tax reduction for some taxable estates (i.e. when the increased Washington estate tax exemption offsets the increased tax rates), larger estates will face a stark increase in Washington estate tax. For example, under the old law, a person dying before July 1, 2025, with an estate valued at $4,000,000 would have had a Washington estate tax liability of approximately $213,000. Under the new law, if the same person died after July 1, 2025, the Washington estate tax liability would decrease to $100,000; a savings of $113,000. Such is an example where the increased exemption offsets the overall increased tax rates. Conversely, under the old law, a person dying before July 1, 2025, with an estate valued at $15,000,000 would have had a Washington estate tax liability of approximately $2,251,400, while under the new law, the same decedent would have a Washington estate tax liability of $2,980,000; an increase of over $728,000. 

Finally, larger estates sometimes face both Washington estate tax as well as federal estate tax. Currently, a decedent’s taxable estate exceeding $13.99 million is subject to a 40% (flat rate) federal estate tax, though Washington estate tax can be deducted as a part of such calculation. Under the old law, Washington residents with estates subject to both federal estate tax and the highest marginal rate under the Washington estate tax faced a combined marginal rate of about 52%. Under the new law, that combined marginal rate increases to about 61% (representing almost a 10% increase in the blended rate).

As you can see, the new law has drastically affected the estate tax landscape here in Washington.

ESSB Impact on Washington Capital Gains Tax

In addition to the changes applied to Washington’s estate tax, Washington’s capital gains tax, which went into effect in 2022, has also been amended to raise its top rate.  The new law increases the capital gains tax rate from 7% to 9.9% on net long-term gains above $1.27 million. The new capital gains tax rates will be applied retroactively to sales occurring on or after January 1, 2025. The new rate structure is as follows:

Given the new tax landscape in Washington, now would be a good time to review your estate plan and meet with your estate planning attorney and other tax advisors to understand how the new law will impact you. We will continue to track the effects of ESSB 5813 and other legislation impacting Washington residents.

Federal Update

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act, which extends many of the tax provisions of the 2017 Tax Cuts and Jobs Act. With regard to federal taxation of wealth transfers, the new legislation will increase the exemption amounts for estate, gift, and generation-skipping transfer tax from $13.99 million ($27.98 million for a married couple - which is the indexed exemption in 2025) to $15 million per person ($30 million for a married couple), and indexes it annually for inflation (using 2025 as the base year). This increase is effective for estates of decedents dying and gifts made after December 31, 2025. Additionally, this change is referred to as a “permanent” change in the law, which means there is no scheduled sunset for the increased tax rates. So, unless there is future legislative action to alter the federal exemptions, this new rate is the new threshold moving forward. It is important to keep in mind that the new legislation does not affect rules regarding portability of a decedent’s unused estate tax and generation-skipping transfer tax exemptions. Because the generation-skipping transfer tax is not portable between spouses, there are still important estate planning techniques that must be implemented in order to take advantage of the new historically high exemptions.

Please feel free to reach out to our office today to schedule a meeting to discuss how the change in both state and federal legislation affects you and to ensure that you are taking advantage of the planning opportunities that are presently available.