Estate Tax Planning Strategies for Washingtonians
This guide is for informational purposes only and does not constitute legal or tax advice. Clients should consult a qualified estate-planning attorney before implementing any strategy.
Strategy | Reduces WA Estate Tax | Retain Access? | Revocable? | Asset Protection | Complexity | Best Use Case |
|---|---|---|---|---|---|---|
Bypass Trust (Credit Shelter Trust) | ✓ | Partial (HEMS) | ✗1 | Some | Low | Married couples near / above $3 M |
SLAT (Spousal Lifetime Access Trust) | ✓ | Via spouse | ✗ | ✓ | Medium | Proactive gifting, HNW clients |
✓ | ✗ | ✗ | Varies | Low | Gradual transfers; remove appreciation | |
ILIT (Irrevocable Life Insurance Trust) | ✓ | ✗ | ✗ | ✓ | Medium | Large life-insurance proceeds3 |
GRAT (Grantor Retained Annuity Trust) | ✓ | ✓ Annuity income | ✗ | Some | Medium | High-growth assets, low §7520 rate |
QPRT (Qualified Personal Residence Trust) | ✓ | ✓ Residence use | ✗ | Some | Medium | Primary / vacation home owners |
FLP / Family LLC Family Limited Partnership / LLC | ✓ | ✓ Manager control | ✗ | ✓ | Medium | Business / investment assets |
CRT Charitable Trust | ✓ | Income stream | ✗ | ✓ | High | Charitable & tax-efficient giving |
✓2 | ✓ | ✓ | ✗ | Medium | Relocation to no-tax state |
1 Credit Shelter (Bypass) Trust: Established under a revocable plan (typically a joint revocable living trust or will) that can be amended or revoked while both spouses are alive. The bypass trust itself becomes irrevocable at the first spouse’s death when it is funded; from that point the surviving spouse generally has limited access (e.g., HEMS standard) and cannot change remainder beneficiaries.
2 Nonresidents & WA-situs property: Changing domicile can reduce or eliminate WA estate tax for non-WA residents, but nonresidents’ Washington real estate and tangible personal property may still be subject to WA estate tax. Intangibles (e.g., marketable securities) are generally taxed by the state of domicile. Review WA DOR apportionment rules when owning WA-situs assets.
3 Three-year rule (life insurance/retained interests): Completed lifetime gifts reduce the WA estate (WA has no gift tax). However, certain transfers can be included in the federal gross estate if the decedent dies within three years—most notably, transferring an existing policy to an ILIT (IRC §2035/§2042). Best practice is for the ILIT to acquire a new policy, or ensure the insured survives three years after an existing policy transfer.