Federal and State Estate Taxes

An estate is taxed on the amount over the estate tax threshold, based on the state where the Will/Trust was created, where the assets are located, and/or where the donor resides. 

Keep in mind that if individuals include a charitable donation in their estate plan, the amount of the donation will be subtracted from the overall value of their estate. This reduction can decrease or even completely offset the value of the assets that are subject to estate taxes.

Remember, an estate valued over the amounts shown below will pay estate tax, but only on the portion exceeding the state/federal tax threshold. The tax rate will depend on which state the estate is located in but is usually between 10-20%. Both federal and most state[1]estate tax rates are progressive, meaning the rates increase as the value of the estate increases, over the state and/or federal threshold. 

I’ve tried to make this as clear as possible, but it is tax law, it is nuanced, please stick with me, and don’t let your eyes glaze over. Donors don’t want to pay these taxes which provides an opportunity for big gifts from high-net worth individuals. 

To be subject to estate taxes in 2024: 

· In Washington state, the value must exceed $2,193,000m per individual. Washington (and Hawaii) has the highest top estate tax rates in the nation. Estates valued at $7m or more will be taxed at 20%. 

· In Oregon, the value must exceed $1,000,000 for each individual.

· For the Federal government, the value must exceed $13.61m for each individual and $25.84m for married couples. This amount will continue to rise with inflation, until the end of 2025.

Big Changes Ahead

The current federal estate tax rate sunsets January 1, 2026, to roughly half the current levels, approximately $14 million for married couples and $7 million for individuals.

Know This for Married Couples

· Assets passed directly to the surviving spouse are typically not subject to federal or state estate tax through the Unlimited Marital Deduction Provision. 

· Federal estate tax law allows married couples to effectively combine their individual federal estate tax exemptions through a provision known as portability. This means that when one spouse dies, any unused portion of their federal estate tax exemption can be transferred to the surviving spouse, potentially increasing the amount the surviving spouse can leave to heirs without incurring federal estate tax. 

· State estate tax exemptions are not subject to portability. This means that any unused portion of the deceased spouse's state estate tax exemption cannot be transferred to the surviving spouse.

Said another way, at the state level, when the surviving spouse passes away, if they have not remarried, their estate, including any assets inherited from the deceased spouse, will be subject to estate tax based on the individual estate tax exemption applicable at that time.

[1]Editor’s Note: Connecticut and Vermont don’t have progressive estate tax rates

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