As indicated in our Fall 2007 Newsletter, the Federal estate tax exemption is now $2 million per estate and goes to $3.5 million in 2009.  It is uncertain what will happen with the Federal tax after that.  It’s possible it will be repealed for a year or more, but what seems more likely is legislation in late 2009 to keep the estate tax, and perhaps the $3.5 million exemption, in place indefinitely. 

The exemption for Washington State is also currently $2 million per estate.  However, the State exemption is not scheduled to increase in 2009.  Please consider the following comments on the Washington and Federal taxes:

1. Wills should be updated to handle changing laws.  Each person’s situation and Will is different, but in short anyone with a taxable estate should have his or her Will reviewed.  For instance, it is common for married couples with taxable estates to provide for the first estate to be held in trust for the surviving spouse’s lifetime benefit, in a way that both of their exemptions are used.  We are now using language that accommodates likely changes to and differences between the State and Federal taxing schemes.  Your Will may need updating. 

2. Form of ownership may affect taxability.  There are quirks in the operation of the Washington tax.  For instance, if a Washington resident owns real estate in another state it isn’t generally taxed by our state.  However, if it is owned through a partnership or limited liability company the asset is considered personal property rather than real estate, and so is taxed by Washington. 

3. Lifetime gifts are likely to reduce taxes.  We talked in our last Newsletter about many kinds of tax-saving gifts (call us if you want another copy).  Lifetime gifts are often the best way to reduce estate tax.  The Federal tax allows tax-free gifts up to $12,000 per recipient per year, and up to $1 million in further lifetime gifts without tax.  The State tax places no limits on tax-saving gifts.