Did you forget to consider this in your estate plan?
Because money doesn鈥檛 come with instructions.庐
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Q:
My wife and I are recently retired after living and working in the Seattle area all our lives. Careful savings, maxing out our annual 401(k) contributions as well as having pensions will enable us to have a comfortable retirement and to leave a nice amount to our daughter, our only child. We鈥檙e new clients, so we鈥檙e going to be meeting with an estate planning attorney along with our planner to update our estate plan. Before that, we wanted to get a leg up: How worried should we be about Washington state鈥檚 estate tax?
A:
First, congratulations. You鈥檝e worked hard to create what seems to be a healthy nest egg that will not only allow you to enjoy retirement but also enable you to leave a substantial amount to your daughter. Because we don鈥檛 have specifics on your assets, such as the actual amount in your nest egg, how much you hope to bequeath, the kinds of assets you have and their net values, it鈥檚 hard for me to say how you should plan for Washington鈥檚 estate tax.
But you鈥檒l be finding out soon because, thankfully, you鈥檝e taken the time to create a comprehensive estate plan. Everyone must have an estate plan, regardless of the amount of assets they have. Period.
All that said, you touched on some general issues people are facing with estate planning, so let鈥檚 consider them.
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Check to see if your state has an estate tax
You鈥檙e right. There is a historically high federal estate tax exemption, and for 2024, it鈥檚 $13.61 million per individual and $27.22 million for couples. That鈥檚 a lifetime tax exemption, so that amount includes all the wealth you transferred during your lifetime as well as the wealth you bequeath to your heirs. While it鈥檚 a large amount, don鈥檛 assume that your estate won鈥檛 owe federal estate taxes. But more on that later.
Let鈥檚 first address the state estate tax that may impact your estate.
So many people focus on the federal estate tax exemption and forget to consider whether they live in one of the 12 states (and the District of Columbia) that levy estate taxes.
Good for you for remembering. State estate tax exemptions are generally not as generous as the federal one.
The 12 states are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and yours, Washington. The estate tax regimes in each vary.
Washington state imposes a tax on the estates of deceased residents whose assets exceed $2.193 million and don鈥檛 pass to a spouse or a charity. Additionally, unlike the federal estate tax exemption amount, a married couple living in Washington is not able to combine their exemption amounts. The Washington estate tax rate begins at 10% and has a top tax rate of 20%. And Washington is concerned with all of your assets.
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Your estate includes your life insurance and your cars as much as it does your 401(k)
When you described what you plan to leave your only child, you only mentioned your 鈥渟avings,鈥 including your 401(k)s and pensions. If you have family heirlooms and jewelry that you want to bequeath your daughter, I鈥檓 sure you remembered to add that into the total asset amount as well as property and homes you have. But did you remember to include the value of your cars, if you own them? Hard to know what they will be worth, but they will be worth something.
So many people forget to account for the value of life insurance in their estate, and not just whole life but term life, which may end up being in effect upon your death.
An estate must account for any assets you have when you pass. That inventory isn鈥檛 fun, but you want to implement tax strategies now if need be to help prevent your estate being unnecessarily diminished by taxes.
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The historically high federal estate tax exemption may go 鈥榖ye, bye鈥 鈥 or not
It鈥檚 great that we have a historically high federal estate tax exemption, for now. It will expire at the end of 2025 because it鈥檚 part of the Tax Cuts and Jobs Act of 2017, which will sunset at that time.
It鈥檚 impossible to predict at this point what new estate tax will emerge under a new tax regime. It may be the same but adjusted for inflation or it may be an even higher tax exemption or a much lower one. Keep in mind that if the lifetime exemption were to sunset today, it would revert to the original 2017 level of $5 million per person, or $10 million per couple, but adjusted for inflation, so that would still be substantial. Moreover, there are a variety of strategies to help mitigate estate taxes, and you and your financial planner can discuss them with an estate planning attorney in the context of your overall financial plan.听
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WE HOPE YOU鈥橵E FOUND THIS INFORMATION HELPFUL
Remember that any financial guidance must be adapted to your unique circumstances, so consult your financial planner. In the meantime, keep those questions coming!
The information regarding estate planning should not be construed as tax or legal advice and is for general informational purposes only.
Neither 91论坛 Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from your qualified tax and/or legal professionals to help determine the best options for your particular circumstances.
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