It’s not much of a secret that the Legislature passed an income tax here in Washington during this year’s short session. This technically isn’t signed into law yet, and it will certainly face challenges if/when it is. We can talk more about that in a later piece, as today we want to focus on a recent bill that has actually been signed into law. This is the partial “rollback” of last year’s estate tax changes. While this bill (SB 6347) is certainly welcomed, there is a devilish little detail that no one is talking about, but you certainly need to be aware of – and we’ll look it here. But first let’s understand the big picture.
After last year’s bill was passed, we wrote plenty about it and spent even more time consulting individually with you all about how this might impact your estate planning considerations. The 2025 bill introduced three key changes:
- A huge expansion of the applicable tax rates, especially at the higher end of the rate table (20% became 35%). (bad)
- An increase in the personal exemption amount from $2.193 million to $3.0 million. (good)
- A technical fix that enabled the exemption to again be indexed to inflation annually. (good)
In the wake of these monumental changes, policymakers soon realized that they had gone too far. These new rates were so far beyond the next most expensive state that they were causing residents (and their capital) to flee, or residents to more aggressively use advanced planning maneuvers to avoid being subject to these egregious taxes. As such, this “roll back” was introduced, which brought with it:
- A reversion to the prior estate tax rate table (shown below) for deaths occurring after July 1, 2026. (good)
- Removing this year’s inflation adjustment and thus reverting back to $3 million for the exemption (but not reverting to $2.193 million, thankfully). (mostly good)
- And the “devilish little detail”…Removing the technical fix that enabled the inflation adjustment moving forward, meaning the exemption is now fixed at $3 million. (bad)
Figure 1: The estate tax tables and exemptions over the years.
This last one is the one that gets no attention but made my blood boil when I learned of it, because it’s either nefarious or ignorant, in my opinion (and I’m not one who likes to assign motivations). To better understand why, you have to understand the backstory, which I’ll quickly touch on. The old estate tax laws included a provision that the exemption would be indexed based on the CPI for the “Seattle-Tacoma-Bremerton” metropolitan area as calculated by the US Bureau of Labor Statistics (BLS). Problem was that the BLS stopped publishing this data point years ago, so there was no longer an applicable index to use for this inflation adjustment. Rather than change the wording so that a different applicable index could be used, they left this as is, and thus the $2.193 million exemption stayed frozen for years.
In 2025, they finally fixed this administrative issue, changing it to the “Seattle metropolitan area” CPI, thus restoring the inflation adjustment.
Figure 2: Highlighting the change made in 2025
But at the last minute as they were passing this bill through the Legislature here in 2026, someone deciding in their infinite wisdom (or cruelty) to revert to the still-defunct CPI data point.
Figure 3: Look what's back...highlighting the change made in 2026
This means that the $3 million exemption will remain frozen moving forward. The addition of the words “Tacoma-Bremerton” now means that inflation will slowly but meaningfully expose more and more of your estate to taxation here in Washington. It’s these slow drips that most people don’t pay attention to, thus allowing inflation to be yet another nefarious tax on your capital.
So where is the good news in all of this?
- The tax rates are much lower than they were (just make sure to hold off on dying until after mid-year!). While still expensive and still certainly at the high end across the 50 states, these rates are more manageable for most. And good estate planning techniques are still available to help you avoid most, if not all, tax exposure and thus pass more down to your heirs and causes you care deeply about.
- The exemption amount of $3 million remains a drastic improvement over the prior $2.193 million, thus allowing more estates to pass tax free without the need for complex estate tax planning efforts.
- This devilish little detail can be changed via a simple legislative fix. (Kindly) pressure your representatives to make this adjustment when they reconvene next year. If you’d like a script for an email to them, let us know and we’ll be happy to put one together for you!
LET’S WRAP IT UP!
These changes (or at least most of them) are certainly welcomed. We didn’t like seeing “just move” become an increasing part of many estate plans, as we don’t like seeing taxes disrupt relationships and rhythms. While most of these changes are positive, they don’t resolve the fact that Washington state remains a relatively expensive place to die – and thus good estate planning remains essential. Core strategies such as the use of a credit shelter trust and gifting prior to death remain very much in play for those with estates over $3 million. Please reach out to us if you would like to review your estate plan in light of these changes. It’s one of our favorite topics to discuss in concert with your estate attorney. And, of course, we’ll let you know if this devilish little detail gets resolved favorably!