As if intending to rub salt into what could turn into a significant tax wound for many people, the Washington legislature is proposing to increase estate tax rates. House Bill 3184 would increase Washington State estate tax rates from the current range of 10% – 19% to 20% to 38%.
This is particularly troubling in light of Congress’s failure to act on the federal estate tax before the end of 2009. For the remainder of 2010 there is no federal estate tax, but under current law the federal estate tax will be automatically reinstated beginning in 2011. When it returns it will do so at 2001 levels, which mean a $1 million dollar exemption and rates that top out at 55%.
The combined effect of HB3184 and the 2001 version of the federal estate tax is nothing short of government confiscation of wealth. Under those tax regimes a Washington resident with a $3 million taxable estate would pay combined estate taxes of $980,000, or nearly one-third of the total estate. Someone with a $5 million taxable estate would pay combined estate taxes of $2,620,000, or over one-half of the total estate.
What to do? First of all, don’t delay planning. Don’t think that Congress or any state legislature is going to keep itself from trying to grab whatever they can get. If you don’t have an estate plan contact a good attorney that knows something about estate tax planning. If you do have an estate plan contact a good attorney anyway. Dust off your old plan and have an attorney take a look at it. Chances are it does not adequately address the current state and federal estate tax structures. Many plans drafted since 2001 (and all plans prior to that date) were not drafted to take into account the very unusual estate tax regimes that we have today.
Second, if you are a resident of Washington contact your representative today and tell them to vote no on HB3184. Then contact your representative or senator in Washington D.C. and ask them to put meaningful efforts into resolving the federal estate tax mess.
Don’t put off creating or reviewing your estate plan! The estate tax environment is fluid and your plan needs to address a variety of possible estate tax circumstances.
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