In 2022, the federal annual gift tax exclusion amount increased from $15,000 to $16,000 per individual, and the federal estate and gift tax exemption amount increased from $11.7 million to $12.06 million per individual, as Stacey wrote in a recent blog post about using gifting as an estate tax planning tool. In this blog post, I discuss changes to Washington’s estate tax for 2022. Spoiler alert: There are no changes. This post is about why there are no changes.
Washington has an estate tax that is imposed on the value of an individual’s estate which is greater than an exclusion amount set by RCW 83.100. For 2022, this exclusion amount is $2.193 million, again. This exclusion amount has been the same since 2018. The Washington Department of Revenue’s estate tax tables show the applicable exclusion amount increasing by several thousand dollars each year between 2013 and 2018, and then the increases stop. What happened?
The Washington Estate and Transfer Act defines the “applicable exclusion amount” as used in reference to our state’s estate tax at RCW 83.100.020(1) as follows:
(1)(a) “Applicable exclusion amount” means:
(i) One million five hundred thousand dollars for decedents dying before January 1, 2006;
(ii) Two million dollars for estates of decedents dying on or after January 1, 2006, and before January 1, 2014; and
(iii) For estates of decedents dying in calendar year 2014 and each calendar year thereafter, the amount in (a)(ii) of this subsection must be adjusted annually, except as otherwise provided in this subsection (1)(a)(iii). The annual adjustment is determined by multiplying two million dollars by one plus the percentage by which the most recent October consumer price index exceeds the consumer price index for October 2012, and rounding the result to the nearest one thousand dollars. No adjustment is made for a calendar year if the adjustment would result in the same or a lesser applicable exclusion amount than the applicable exclusion amount for the immediately preceding calendar year. The applicable exclusion amount under this subsection (1)(a)(iii) for the decedent’s estate is the applicable exclusion amount in effect as of the date of the decedent’s death.
(b) For purposes of this subsection, “consumer price index” means the consumer price index for all urban consumers, all items, for the Seattle-Tacoma-Bremerton metropolitan area as calculated by the United States bureau of labor statistics.
The estate tax exclusion amount was intended to increase in tandem with the consumer price index which, in subsection (b) above, is defined to mean the consumer price index for the Seattle-Tacoma-Bremerton area, as calculated by the U.S. Bureau of Labor Statistics. The problem is that, as of 2018, the U.S. Bureau of Labor Statistics eliminated the consumer price index for the Seattle-Tacoma-Bremerton area and instead shifted to calculating the consumer price index for the Seattle-Tacoma-Bellevue area. The result is that the applicable exclusion amount for Washington taxable estates is frozen at $2.193 million until the Washington legislature updates RCW 83.100.
At some point, the Washington legislature may get around to updating the estate tax exclusion amount. People who live in Washington with asset levels over the applicable exclusion amount should consult with an estate planning attorney regarding their estate tax planning options, which may include gifting, a testamentary trust funded on the death of a spouse, or a combination thereof. In addition, it is important to review any existing estate plan on a regular basis in case any changes in the law warrant updated estate planning documents.
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