What is the estate tax?
- Does the state of Washington have an inheritance or estate tax?
Washington does not have an inheritance tax. Washington does have an estate tax.
During a general election in November 1981, the voters repealed an inheritance tax and enacted an estate tax. The change from an inheritance tax to an estate tax became effective January 1, 1982. Due to this change, Washington no longer has an inheritance tax waiver.
In general terms, an inheritance tax is a tax on the beneficiaries of an estate whereas an estate tax is a tax on the decedent’s estate.
If you are a person living in Washington who inherits property or money, you do not owe Washington taxes on your inheritance.
- What is the estate tax?
The estate tax is a tax on the right to transfer property at the time of death. A person residing in Washington or a non-resident who owns property in Washington may owe an estate tax depending on the value of their estate.
- Who must file a Washington estate tax return?
The executor for a decedent’s estate is required to file an estate tax return if the gross estate meets the filing threshold for the date of death. See the Filing thresholds and exclusion amounts table to determine if an estate tax return is required to be filed.
If the total gross estate is below the filing threshold, no estate tax return needs to be filed. If the total gross estate is above the filing threshold, an estate tax return must be filed even if no tax would be due.
If a Washington return is required to be filed and a Federal Form 706 is filed, a copy of the Federal Form 706 must be included with the Washington estate tax filing.
- What is the estate tax filing threshold?
The executor must file a Washington estate tax return if the decedent owned property in Washington state and the gross estate exceeds the filing threshold.
For estate tax filing amounts, see the Filing thresholds and exclusion amounts.
- What is the estate tax applicable exclusion amount?
The applicable exclusion amount is an amount deducted prior to calculating estate tax due. For dates of death of January 1, 2014, and after, the exclusion amount may be adjusted annually using the Seattle-Tacoma-Bremerton metropolitan area October consumer price index.
For applicable exclusion amounts, see the Filing thresholds and exclusion amounts table.
- What are the estate tax funds used for?
The estate tax funds are deposited into the Education Legacy Trust Fund.
The Education Legacy Trust Fund provides funding for:
- The student achievement fund for reducing class sizes, professional development of teachers, extended learning such as before- and after-school programs, and pre-kindergarten learning.
- Learning assistance program to help kindergarten through 12th-grade students who are not up to standards.
- Higher education (which includes monies for financial aid, supporting additional enrollment of students, adult basic education programs in community colleges, work-study programs, etc).
- What are my responsibilities as a personal representative or executor of an estate?
When you are appointed as the Personal Representative of an estate, you are now an officer of, and responsible for, the proper administration of the estate’s assets. It is recommended that you seek an attorney's advice on all matters concerning the estate.
Here are a few items you should pay special attention to:
- Immediately take possession of all of the decedent's assets now belonging to the estate.
- If the estate is probated, file an inventory with the court listing the estimated values of all of the estate's assets as of the date of decedent's death. However, please note that the inventory and appraisement is not valid supporting documentation for filing an estate tax return.
- Keep the money and property of the estate separate from your own assets and from any other person's assets. Do not commingle or mix assets of the estate in your personal bank or brokerage accounts. Do not mix any estate money with your own or anyone else's.
- Do not lend funds of the estate to anyone. Never borrow money from the estate for your personal use.
- Make estate checks payable to the provider of goods or services, not to "cash" or yourself. Keep estate funds in accounts for which the financial institution provides you a written record showing the date, payee, and amount for each disbursement from the account. The record may be an original canceled check, a copy of the canceled check showing it has cleared the bank, or information printed in a regular statement from the financial institution. Keep accurate records of all receipts of funds. Every receipt and disbursement must be separately itemized. Avoid cash transactions.
- Do not pay any bill of the estate without determining that you have the authority to do so. Use estate funds, not your own funds, to pay estate expenses whenever possible. If you have paid estate expenses, such as funeral expenses, from your own funds, and if you have a receipt or other proof of the payment, you may reimburse yourself from estate funds. Keep all payment proofs as documentation. If the decedent owed a debt to you, you must have written documentation proving the debt is due before you pay that debt.
- Do not give or distribute any estate property to any heirs or other persons without the final determination or release of the estate’s obligations.
- You may be required and should be able to file an accounting of all receipts and expenditures in the estate. The accounting record must track and document all assets on hand at the beginning and end of the accounting period. Written proofs of payment and the first and final statements for each bank or other account in the estate must be included in the estate’s accounting records.
The estate tax section employees are not attorney’s, and cannot provide legal advice. The above are general guidelines all personal representatives should follow in their duties as an officer of the estate.
How do I file the estate tax return?
- What is the due date for the estate tax return?
The due date of the Washington State Estate and Transfer Tax Return is nine months after the date of death.
A timely filed extension application will automatically extend the return due date six months.
Note: Any tax due must be paid within the nine months after the date of death or interest will accrue.
- How do I file for an extension or an additional extension of the estate tax return?
When you are applying for your federal extension, send us a copy of the Federal Form 4768 at the time of filing, and include estimated Washington tax due, if any. If you are not filing a Federal Form 706, submit the Application for Extension of Time to File a Washington State Estate and Transfer Tax Return.
To request an additional extension in excess of the six month extension submit an Application for Extension of Time to File a Washington State Estate and Transfer Tax Return along with a statement explaining in detail why it is impossible or impractical to file by the due date. Be sure to mark the additional extension box and enter the date of the extension on the application form.
Note: The due date for either the Washington estate tax return and estate tax payment, or a request for an extension to file the Washington estate tax return with or without an estimated payment, is nine months after the decedent's date of death. Payment received after the due date will accrue interest.
- What should I do if I previously filed an extension and now I know the estate is under the filing threshold?
- Send us a short letter stating this fact. We will close our file.
- How is the estate tax calculated?
The tax is calculated using the Washington taxable estate and Table W. The Washington taxable estate is the gross estate less all allowable deductions, including the applicable exclusion amount.
- What are the estate tax rates for deaths on or after January 1, 2014?
- The tax rates range from 10% to 20% of the Washington taxable estate. The taxes are calculated on a graduated scale; each range is taxed at a different rate. See Table W-Computation of Washington estate tax.
- How do I know what the Washington taxable estate is?
- To determine the Washington taxable estate, take the gross estate and subtract any allowable expenses and deductions. The allowable expenses and deductions include items such as the decedent's funeral expenses, costs of administering the estate, any debts of the decedent (mortgages, liens, outstanding bills), bequests to a spouse, gifts to charity, the farm deduction (if eligible), the qualified family-owned business interests deduction (if eligible), and the applicable exclusion amount.
- What documentation should I include with the estate tax return?
Before sending the filing, please read the following:
What to include when filing
Please assemble in the order listed below (unstapled, no binding, and no tabs):
- Payment made payable to Washington State Department of Revenue, if applicable.
Original Washington State Estate and Transfer Tax Return signed by the executor.
- Include the first three pages of the form and any of the completed Washington return schedules.
- Addendum(s), if applicable.
Copy of the filed Federal Form 706, if applicable.
- Include the first four pages of the form and any completed 706 return schedules.
- Copy of Death Certificate.
- Copy of Letters of Administration/Testamentary, if applicable.
- Copy of Will, if applicable.
- Copy of Trust(s), if applicable.
- Copy of gift tax return(s) (Federal Form 709), if applicable.
All supporting documentation for the completed return schedules (one copy of each):
- Brokerage statements or valuation software reports.
- Financial or bank statements.
- Federal Form 712.
- Business valuations, especially for closely-held or non-publicly traded businesses.
- Any other type of document or calculation supporting the value reported on a schedule.
Note: All documentation must reflect the proper actual or fair market value of an asset as of the valuation date. For most estates, the valuation date will be the date of death of the decedent. However, if alternate valuation is elected, then assets will have two valuation dates; the date of death and typically a date six months after the date of death (see Internal Revenue Code § 2032 for further clarification). When alternate valuation is reported, two sets of supporting documentation must be sent; one showing date of death values and one showing values as of the alternate valuation date.
- Where do I send the Federal Estate Tax Closing Document after I receive it from the Internal Revenue Service (IRS)?
The IRS closing document should be mailed to:
Washington State Department of Revenue
PO Box 47474
Olympia WA 98504-7474
or faxed to 360-534-1499.
- How do I pay the estate tax? Who do I make the check payable to and when is the payment due?
To pay the estate tax, send the payment with either a timely filed extension application or the Washington State Estate and Transfer Tax Return.
Mail the payment and form to:
Washington State Department of Revenue
PO Box 47474
Olympia WA 98504-7474
Make the check payable to: Washington State Department of Revenue.
The estate has nine months from the date of death to pay any tax due. If the estate tax liability is unknown at the nine month due date an estimated tax payment should be made. An extension to file does not give an estate an extension to pay. Interest accrues on any unpaid tax outstanding after the nine month due date.
An estate that includes a qualifying closely-held business may be able to enter an installment payment plan for the portion of taxes attributable to the closely-held business.
- What do we do if we are filing and/or paying late?
If an estate is unable to file a timely return, an Application for Extension of Time to File form (either the Washington form or a copy of the Federal Form 4768, if applicable) must be submitted prior to the due date of the estate tax return.
For any late payment of estate tax, interest should be included with the payment. Interest accrues daily on any unpaid principal. The interest is calculated using simple interest, not compound interest. For assistance with computing interest on an estate tax return, call the estate tax section at 360-704-5906.
- Can I use the commercially available Federal Form 706 preparation software to complete the schedules for a Washington only filing of an estate tax return?
You may use the software to complete the schedules only. You must complete the first three pages of the Washington return and any applicable addendums.
- What is the interest rate for estate tax?
The interest rate for estate tax changes annually. See our interest rate table for current rates. Interest accrues daily on any unpaid principal. The interest is calculated using simple interest, not compound interest. For assistance with computing interest on an estate tax return, call the estate tax section at 360-704-5906, select option 1.
- What is the late payment penalty or late filing penalty?
There is no late payment penalty. Interest will accrue on any late payment.
A late filing penalty will apply only if the department notifies the executor in writing that we have determined a filing is required prior to the estate voluntarily notifying us a filing is required (e.g. written notification, filed extension, filed return). If a penalty is applied, it is 5% of the tax due per month (up to 25% or $1,500, whichever is less).
- How do I amend the estate tax return?
The Washington Estate and Transfer Tax Return has a checkbox on the form to designate the return as an amended return. To amend a previous filing, simply complete a new estate tax form with the amended return box checked. The first page, along with any other return, schedule, and/or addendum pages that have been changed, must be sent with all supporting documentation showing why the return is being amended. We do not need a complete filing of the original return, only the pages that have been changed and documentation explaining those changes.
What assets should be reported on the estate tax return?
- What assets should be included in the estate? Is it different for a married couple?
All assets owned by the decedent on the date of death should be included in the estate. All assets, even if located in another state, should be reported on the estate tax return (see the Estate tax apportionment for out of state property page).
For the estate of a married decedent, all of the community property and all of the decedent’s separate property are reported on the estate tax return. The community property assets are then reduced by 50% to reflect the decedent’s share of the property. Even if the entire estate will pass to the surviving spouse and no taxes may be due, an estate tax return must be filed if the decedent’s half of the community property, plus the decedent’s separate property, meets the filing threshold.
- Do I have to include out of state property on the estate tax return?
Yes. All property owned by a decedent must be included on the estate tax return. The estate tax is calculated on the entire estate as if all property is in Washington, then a calculation is done to apportion the tax between the Washington property and the out of state property.
The decedent’s state of domicile at the time of death is what determines if property is in state or out of state property. For a Washington domiciled decedent, any tangible personal property located outside of Washington and any real property located outside of Washington are considered out of state property. For an out of state domiciled decedent, all intangible property, any tangible property located outside of Washington, and any real property located outside of Washington, are considered out of state property.
For more details, see the Estate tax apportionment for out of state property page.
- How do I value the assets in the estate?
All assets owned by a decedent are valued at their actual value or fair market value for the valuation date.
The “actual value” of an asset is its cash value or unpaid principal plus any interest accrued to the valuation date.
The “fair market value” is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. The fair market value would be a sale in an arm’s-length transaction and never determined by a forced sale. Fair market value for a business entity would include any goodwill inherent in the business. For most stocks and bonds, the fair market value is the mean between the highest and lowest selling prices quoted on the valuation date.
The “valuation date” is the date of death of the decedent. However, an alternate value date (six months after the date of death) may be elected. See the instructions for the estate tax return to determine if alternate value may be elected for an estate.
When filing the estate tax return, be sure to include all supporting documentation showing the actual or fair market value. Supporting documentation can include, but is not limited to, real estate appraisals, date of death brokerage statements, and business appraisals.
- How do I determine the value of real estate included in the estate?
The best way to determine the value of real estate is an actual arms-length sale within a reasonable time after the date of death of the decedent. When real estate is not sold, the way to determine fair market value is through the use of a certified appraisal.
To locate an accredited appraiser in the real estate’s county, search using the following link: http://apps.dor.wa.gov/appraisersearch/appraisersearch.aspx.
- Are gifts taxable for Washington estate tax purposes, if so, where do I report gifts on the estate tax return?
Generally, outright gifts given prior to the date of death are not taxable for Washington estate tax purposes.
However, federal gift tax paid, or payable, within three years of the date of death is included as an asset of the estate on Schedule G - Transfers During Decedent’s Life. The federal gift tax paid or payable is reported on the schedule, not the amount of the gift.
Also, any transfers that meet one of the four Internal Revenue Code provisions listed below are considered part of the decedent’s estate because the decedent retained a life interest. If the decedent had any of these four types of assets prior to death and gave the asset outright within three years of death, those gifts are added back into the value of the gross estate and reported on Schedule G - Transfers During Decedent’s Life.
The IRC provisions are:
- 26 USC §2036 - Transfers with retained life estate.
- 26 USC §2037 - Transfers taking effect at death.
- 26 USC §2038 - Revocable transfers.
- 26 USC §2042 - Proceeds of life insurance.
A gift made beyond three years of the date of death, or that does not meet one of the four IRC provisions listed above, is not included in the Washington gross estate.
Are there any special elections or deductions available when filing an estate tax return?
- Is there an election for qualified terminable interest property (QTIP)?
Yes. For details, see the Estate tax qualified terminable interest property page.
- Is there a farm deduction, if so, how much can be deducted?
The value of farm property (land, stock, produce, equipment, etc.) can be deducted from the taxable value of an estate as long as the value of farm property comprises at least half of the total adjusted value of the estate, and it meets other statutory requirements. The farm deduction is unlimited and is in addition to the applicable exclusion amount.
A tenant farmer may qualify for the farm deduction if certain requirements are met.
The definition of a farm includes stock, dairy, poultry, fruit, furbearing animals, and truck farms; plantation; ranches; nurseries; ranges; greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities; and orchards and woodlands.
For more details, including the requirements for the farm deduction, see the Estate tax deduction for farms page.
- Is there a deduction for family-owned business interests?
Yes, there is a deduction for qualified family-owned business interests (QFOBI). The QFOBI must meet certain requirements in order to be deducted from the estate.
The heirs of the QFOBI must continue the operation of the trade or business for three years after the decedent's death. If the heirs do not continue operation of the trade or business, additional tax will be due.
For more details, including the requirements for the QFOBI deduction, see the Estate tax qualified family-wwned business interests deduction page.
- Am I allowed to defer estate taxes owed?
A portion of estate taxes owing may be deferred, but only on the part attributable to a qualified closely-held business. Estate taxes attributable to the remainder of the estate, or to an estate without a qualified closely-held business, cannot be deferred.
Computing the estate tax due for an estate with a closely-held business is the same as for other estates. The ability to defer the estate taxes attributable to a closely-held business is done by electing an installment plan consistent with §6166 of the Internal Revenue Code.
The purpose of an installment election is to prevent the forced liquidation of a closely-held business. The election allows for an installment payment plan over ten or fifteen years. Typically, an installment payment plan involves paying only the accrued interest on the deferred tax for the first five years. For the next ten years, the estate pays 1/10th of the deferred tax (principal), plus the accrued interest. There is no penalty for paying an installment plan off early.
For more details, including the qualifications for an installment election consistent with §6166, see the Estate tax installment plans for closely-held businesses page.
- Does Washington recognize portability of any unused exemption amount?
Washington law does not have, nor does it incorporate, the federal provisions of portability for estate tax. Each estate is entitled to the applicable exclusion amount based on the decedent’s date of death.
- What expenses and/or deductions are commonly allowed on Schedules J, K, or L?
- Funeral expenses (or half if community property estate).
- Costs of administering the estate such as executor’s commissions, attorney fees, and accountant fees.
- Appraisal fees for real estate, tangible personal property, jewelry, art, or other collections.
- Outstanding property taxes (prorated up to the date of death only).
- Debts of the decedent such as outstanding mortgages, credit cards, or similar debts (including interest accrued up to the date of death).
- Expenses incurred from administering a trust.