NEWS & RESOURCES

Authored by: Kyle Meissner, CPA, Financial Advisor & Member 

Taking time to create estate planning strategies not only helps you put your financial house in order but can potentially save you money. By documenting your wishes and goals, you create a legal framework that the courts, your executor and your loved ones can follow when settling your estate. Without these strategies in place, your family risks going through a lengthy and expensive process, which could alter any wishes you had for your legacy.

Working with an accountant and financial advisor who actively collaborates with your estate planning attorney is critical to help you best prepare for unexpected situations and proactively plan for ways to save on estate taxes in the future.

Below I discuss the gift and estate tax limits in Washington and how to take the first step to form a plan.

Federal & Washington State Estate Tax
After you pass away, a tax is assessed on the value of your estate above a certain amount, also known as an estate tax. For 2023, the Federal limit is $12.92 million. However, the estate tax in Washington applies to estates worth $2.193 million or more. This estate tax is not portable for married couples, which means the surviving spouse is not allowed to transfer the deceased spouse’s unused exemption amount. When both spouses pass away, only one exemption of $2.193 million applies. To reduce your taxable estate, you can give ‘gifts’ to others while you remain alive. Because Washington does not have a gift tax, you are able to make gifts – of any size each year – to anyone – without being hit with a tax bill at the state level.

Inheritance Tax
The federal government does not collect an inheritance tax while six states do, Washington not being one of them. If you do not live in Washington, you need to speak to an estate planning attorney in your state to see if there is a method to minimize inheritance taxes, if applicable.

Federal Gift Tax
What if you want to simply gift an asset or money to someone to avoid any estate and inheritance tax? The government levies a tax on the giver based on how much they are giving away, not the recipient. In 2023, you’ll be able to give away up to $17,000 per person without having to pay a tax. Any amount gifted over this threshold requires you to file a gift tax return and counts against your lifetime exemption of $12.92 million. It’s important to note that gifted assets do not receive a step-up in basis at the time of the gift, so it’s recommended to avoid gifting highly appreciated assets, if possible.

Form 1041: U.S. Income Tax Return for Estates and Trusts
When someone dies, their assets become property of their estate. Any income the assets generate become part of the estate and may require you to file an estate income tax return. Some examples of income-producing assets are CDs, bonds, mutual funds, savings accounts or stocks. Form 1041 is used to declare any taxable income that an estate or trust generated after the decedent passed away and before designated assets were transferred to beneficiaries. It’s important to note that if your estate generates more than $600 in annual gross income, you are required to file Form 1041.

Seek Knowledgeable Professionals
Tax-smart legacy planning is essential for all of us, regardless of our wealth. It becomes even more crucial when you own a business or have loved ones who depend on you. With the ever-changing tax landscape, it’s critical to engage with an accountant and financial advisor who actively collaborates on your behalf so they can manage any changes that may arise to preserve your wealth.

While Cordell, Neher & Company, PLLC does not perform legal services, we advise clients with estate and legacy planning needs and help with the implementation by coordinating with attorneys to prepare associated wills, Power of Attorney documents and living wills. For more information about estate planning, or our other financial services, visit our website at cnccpa.com. Call any of our qualified advisors, CPAs or accountants at (509) 663-1661, and we’ll begin helping you, your family or your business today.