Estate tax apportionment for out of state property

An estate that contains out of state property must first calculate estate tax due on the entire estate as if all property is Washington property. Then, an apportionment calculation is done to determine estate tax payable.

To determine the amount of estate tax payable if the estate contains out of state property, the tax computed on the entire estate is multiplied by a fraction. Generally, the numerator of the fraction is all Washington property and the denominator is the gross estate.

If apportioning for out of state property:

Out of state property defined

In general terms, out of state property means property that is physically located outside of the state of Washington. Intangible personal property is allocated to the state of domicile of the decedent. Trust assets included in the gross estate of the decedent are identified as in state or out of state property based on the physical location for tangible personal property and real property or the decedent’s domicile for intangible personal property.

Out of state property owned by a decedent domiciled in Washington is any tangible personal property and any real property located outside of Washington. Out of state property owned by a decedent domiciled outside of Washington is all intangible personal property, any tangible personal property and any real property located outside of Washington.

Examples of property

Tangible personal property includes, but is not limited to:

  • Antiques.
  • Artwork.
  • Boats.
  • Furniture.
  • Jewelry.
  • Machinery.
  • Tools.
  • Vehicles.

Real property includes, but is not limited to:

  • Bare land.
  • Condominiums.
  • Houses.
  • Mineral interests.

Intangible personal property includes, but is not limited to:

  • Annuities.
  • Bank accounts.
  • Business interests.
  • Bonds.
  • Interests in partnerships.
  • IRAs.
  • Life insurance.
  • Retirement plans.
  • Royalties.
  • Stocks.
Domicile defined

The decedent’s domicile at time of death is the permanent legal home that the decedent intended to use for an indefinite or unlimited period, and to which, when absent, the decedent intended to return. The question of domicile is mainly a matter of intention as indicated by the decedent’s actions. The estate must be able to show that the decedent intended a given place or state to be their permanent home.

Several factors are considered when determining domicile and include:

  • Decedent’s address reported on the federal income tax return.
  • Where the decedent is registered to vote.
  • Location of property owned by the decedent.
  • Decedent’s citizenship.
  • Length of residency of the decedent.
  • Decedent’s business or social ties to the community.

The amount of time spent in one place does not always explain the difference between home and domicile. A temporary home or residence may continue for months or years while a domicile may be established the first moment the property is occupied. The intent is the determining factor in providing where a decedent is domiciled.

If there is a question as to what the domicile for the decedent is:

Examples of apportionment calculation

Example - Washington resident decedent

A Washington resident dies in 2019 leaving a gross estate of $4.1 million. The decedent owned a second home in Arizona valued at $300,000 and unimproved real property in South Dakota valued at $750,000.

The estate had $100,000 in expenses deductible for estate tax purposes. The applicable exclusion amount for 2019 is $2,193,000.

Under the facts of this example, the estate has a Washington taxable estate of $1,807,000, computed as shown below:

Gross estate:

$4,100,000

Less allowable deductions:

($100,000)

Less applicable exclusion amount:

($2,193,000)

Washington taxable estate:

$1,807,000

The preapportioned Washington estate tax for this estate equals $212,980, computed as follows: $100,000 + ($807,000 x 14%) = $212,980.

Because the decedent owned out-of-state property, a house in Arizona, and unimproved real property in South Dakota, that are both not subject to Washington estate tax, the tax due to Washington is calculated by multiplying the amount of preapportioned tax by the apportionment fraction shown below.

In addition, because the decedent was a Washington resident at death, the numerator of the apportionment fraction is the value of all property included in the decedent's gross estate that is located in this state, including the decedent's intangible personal property. The denominator of the apportionment fraction is the value of the decedent's gross estate.

The apportionment formula is:

Apportioned Washington estate tax = ((Gross estate – out of state property) / Gross estate) x preapportioned Washington estate tax.

Using the facts in our example, the tax owed to Washington equals $158,436, computed as follows:

(($4,100,000 - $1,050,000) / $4,100,000) x $212,980 = $158,436.


Example – Nonresident decedent

A nonresident dies during 2018 leaving a gross estate of $6 million. The decedent was a Colorado resident at death and all of the decedent's property is located in that state except for a vacation home located in Washington valued at $650,000.

The estate had $100,000 in expenses deductible for estate tax purposes. The applicable exclusion amount for 2018 is $2,193,000.

Under the facts of this example, the estate has a Washington taxable estate of $3,707,000, computed as shown below:

Gross estate:

$6,000,000

Less allowable deductions:

($100,000)

Less applicable exclusion amount:

($2,193,000)

Washington taxable estate:

$3,707,000

The preapportioned Washington estate tax for this estate equals $503,120, computed as follows: $390,000 + ($707,000 x 16%) = $503,120.

Because the decedent owned property located outside Washington, the tax due to Washington is calculated by multiplying the amount of preapportioned tax by the apportionment fraction shown below.

In addition, because the decedent was not a Washington resident at death, the numerator of the fraction does not include the value of decedent's intangible personal property. The denominator of the fraction is the value of the decedent's gross estate.

The apportionment formula is:

Apportioned Washington estate tax = ((Gross estate – out of state property) / Gross estate) x preapportioned Washington estate tax.

Using the facts in this example, the tax owed to Washington equals $54,505, computed as follows:

($6,000,000 - $5,350,000 / $6,000,000) x $503,120 = $54,505.

For additional information, see WAC 458-57-125.

Questions?

Send us your question or call 360-704-5906, option 1, to speak with an estate tax examiner.