Balancing Washington and Federal Estate Taxes
I recently had a conversation with a family interested in planning to avoid Washington estate taxes. This estate tax is also known as transfer tax or death tax. There is a currently a federal estate tax around $5.5 million and Washington estate taxes for estates above $2 million. People falling in between the $2-$5.5 million have an opportunity to avoid the Washington estate tax if some proper planning is put into place. Check out the video below for more.
Hi. Colin Ley here with LayRoots. I want to talk to you about Washington estate taxes, also known as transfer taxes, inheritance tax, death tax, taxes that a lot of people don’t want to end up paying. In Washington State, if you die with more than that number there, roughly 2 million dollars, your loved ones will be paying estate taxes; somewhere between 10 and 20%.
When a lot of people learn about that, they also want to learn about how they can avoid paying those taxes. One of the most common ways is to give away some of your assets. There is a federal lifetime gift exemption of about 5-1/2 million dollars right now. It does change over time, but basically you can give away up to this amount without owing any gift taxes. What people would do, if you were, say, have an estate worth about 4 million, you could give away 2 million. That would bring you down below that 2 million mark, and your loved ones wouldn’t owe any estate taxes at your death.
Now, one thing to consider though, a mistake a lot of people make is that they give away an asset or assets that have a low basis for capital gains taxes. If you were to give away, say, a piece a property that you bought a long time ago, when your loved ones or whoever you gift that property to end up selling it, they’re going to be potentially paying a lot of capital gains taxes. You don’t want to take action to avoid a 10% estate tax and end up having somebody paying a 20% or 15% capital gains tax.
You want to make sure that you’re gifting assets that won’t result in a lot of capital gains taxes, and that way you can do some great planning to lower your tax liability, and that’s it. That’s all I got today. Hope that’s clear for you. You can reach out to us with any questions you have and thanks for watching. Take care.
Colin Ley is a Seattle estate planning attorney. He is also the co-founder of LayRoots along with his wife, Shreya.