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| WARNING: WASHINGTON RESIDENTS The State of Washington is one of just a few estates that impose a state estate tax which is additional to the federal estate tax. If you were a Washington resident at the time of death or if you resided in another state but owned property in Washington, your estate will be subject to the Washington estate tax. The tax is currently capped at 19% of the fair market value of the estate and it affects persons who die on or after May 17, 2005, with a Washington taxable estate of more than $1.5 million (for 2005 deaths) and $2 million (for 2006 deaths and beyond). The Washington State filing threshold is different from the federal filing threshold for completing the estate tax return. If the decedent has a gross estate or a taxable estate plus taxable gifts of $2,000,000 or more, the estate is required to file a Washington State estate tax return. If the decedent has a gross estate or taxable estate plus taxable gifts of $3,500,000 or more, the estate is required to file a Washington State estate tax return and include a copy of the filed federal estate tax return.
For dates of death on or after 5/17/05 If Washington Taxable | The Amount of Tax Equals | Of Estate Value above | Estate is at least | But Less Than | Initial Tax Amount | Plus Tax Rate % | | $0 | $1,000,000 | $0 | 10.00% | $0 | $1,000,000 | $2,000,000 | $100,000 | 14.00% | $1,000,000 | $2,000,000 | $3,000,000 | $240,000 | 15.00% | $2,000,000 | $3,000,000 | $4,000,000 | $390,000 | 16.00% | $3,000,000 | $4,000,000 | $6,000,000 | $550,000 | 17.00% | $4,000,000 | $6,000,000 | $7,000,000 | $890,000 | 18.00% | $6,000,000 | $7,000,000 | $9,000,000 | $1,070,000 | 18.50% | $7,000,000 | Above $9,000,000 | | $1,440,000 | 19.00% | Above $9,000,000 |
| | Federal Estate Tax The estate tax is a tax on your right to transfer property at your death. This hefty tax can have devastating effects on your estate. At your death, your estate may have to pay up to 55% of the value of your assets to the government. Many times your heirs will have to sell your assets just to be able to cover the amount of estate tax owed.
The estate tax is assessed on the overall fair market value (not necessarily what you paid for things or what their values were when you acquired them) of your "Gross Estate." Your Gross Estate includes pretty much everything you own at the date of death, including cash and securities, real estate, insurance policies, trusts, annuities, business interests, and all other assets.
Note: the size of the probate estate has nothing to do with the size of the federal taxable estate.
Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. After the net amount is computed, the tax is then assessed at the highest possible bracket. The estate tax is then reduced by the available "Unified Credit." The difference consists of the amount of estate tax you owe. Note: The amount of available Unified Credit changes from year to year. It is impossible to predict how much the Unified Credit will be in a given year. Below is a list of Unified Credits for the last ten years.  | | Myths 1. I WILL NEVER OWE ESTATE TAXES BECAUSE MY ASSETS ARE WELL BELOW THIS YEAR'S UNIFIED CREDIT AMOUNT. The unified credit amount which is applicable to your estate is the one in place at the time of your death. Unless your death is imminent, it doesn't matter what this year's unified credit is. In the last ten years the unified credit has ranged from $675,000 to $3,500,000. Unless your death is near and certain, you will never know what the unified credit will be at the time of your death. 2. I WILL NEVER OWE ESTATE TAXES BECAUSE MY ASSETS ARE NOT WORTH VERY MUCH. The estate tax is assessed on the overall fair market value of your assets at the time of death. Fair market value is a price on which a willing buyer and a willing seller would agree. Many people think their assets are worth much less than they really are. The government has its own inflated valuation techniques. You may be surprised to find out that, for estate tax purposes, your assets are worth multiple times what you thought they were. 3. I WILL NEVER OWE ESTATE TAXES BECAUSE I HAVE A LIVING TRUST. Keeping property in a living trust and out of your probate estate does absolutely nothing to avoid this property from coming into your taxable estate. Assets in a living trust are just as subject to income and estate taxes as if you owned them directly. To accomplish estate and income tax savings, a variety of more complicated strategies must be used. | |
| Federal Gift Tax
Anyone can make a gift to any other person of up to $13,000 per year with no federal gift taxes. A married couple can gift up to $26,000 to one person in any given year. A married couple can also gift $52,000 to another married couple or to two children. For annual gifts within those limits there is little tax planning to do and no gift tax return needs to be filed. For gifts exceeding the $13,000/26,000 annual exclusion, there is a lifetime unified credit available, which is similar to the estate tax unified credit. Once this unified credit is used up, all gifts above this amount are subject to a gift tax and the filing of a gift tax return. The gift tax is a tax owed by the donor, not the donee. The effects of the gift tax can be as sweeping and devastating as those of the estate tax. For this reason, all larger gifts should be planned carefully to reduce or avoid gift taxes altogether by using special trusts, family limited partnership programs, or many other available tools. | |
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