In Part 1 of this blog series, I described the basics of both federal and Washington estate tax. Then, as a simplified example, I provided the following scenario:
Molly Megabucks dies with a $15 million estate. Her Will leaves everything to her surviving spouse, Lucky Louis, but fails to address any estate tax planning. Molly’s death will be “free” in that no federal or Washington estate tax will likely be owed. But, here’s the rub. Suppose Lucky Louis lives for a few more years, spends $3 million, and then dies with a Will distributing all assets to the children – again, without tax planning. Lucky Louis’s heirs are rather unlucky, in that both federal and Washington estate tax will be owed.
Most people don’t have $15 million estates. However, many of our clients are surprised to discover that with King County’s escalating home prices, coupled with the value of life insurance proceeds (yes, that counts!), a surviving spouse can indeed have an estate approaching $3 million. Although that estate would not be subject to federal estate tax, it would be subject to Washington estate tax.
Regardless of whether you are Molly Megabucks and Lucky Louis, or if you are of more modest means but still facing potential Washington estate liability, there are certain strategies that you can employ to reduce or eliminate estate tax liability including:
- For married couples or, in regard to the Washington estate tax, for couples who have a Washington registered domestic partnership, you can strategically use testamentary trusts in your Wills such as a disclaimer trust or a credit shelter trust.
- For 2016, you can give $14,000 to an individual ($28,000 for a married couple) without incurring gift tax liability. Making these gifts on an annual basis is a terrific way to reduce the size of your estate.
- You can also make charitable donations, both during your life and upon your death in order to reduce the size of your estate. Donating to charity is my favorite way to reduce estate tax liabilities! I love working with clients who are philanthropic. Not only do these donations reduce or eliminate your estate tax burden, but they also serve as a part of your legacy – a way to express your values to family, friends and colleagues.
In other words, death taxes are not a certainty! With proper planning, estate tax liability can be reduced or avoided. Questions? Our office is happy to work with you to find the solutions that best fit your needs.
Photo credit: 401(k) 2012 on Flickr