Dear Clients and Friends,

This afternoon, Washington Governor Ferguson signed SB 5813 implementing the below “generational” changes to Washington’s estate tax and capital gains tax.

The estate tax applies to residents of Washington AND to non-residents who own real property in Washington titled in their individual names or in a living trust.

The net results of the estate tax changes will be to:

  — REDUCE net estate taxes on individuals with taxable estates of less than $6 million AFTER deducting the below exemption amounts; and

  — INCREASE net estate taxes on individuals with taxable estates of $6 million or more AFTER deducting the below exemption amounts.

Key takeaway:

The most vulnerable Washingtonians are married couples with combined assets of $3 million to $6 million who do NOT have properly drafted wills or trusts. If you have documents from our firm, you are protected.

(Here’s why: the most easily overlooked fact in Washington estate planning is that NO Washington law allows a surviving spouse to “use” a deceased spouse’s “unused” estate tax exemption amounts. Federal law does so; Washington law does not. This is a massive trap for the “least wealthy,” i.e., married couples with combined assets of $3 million to $6 million (double the new exemption amounts described below). Such a married couple MUST HAVE DOCUMENTS that PROPERLY “use” or “preserve” both spouses’ exemption amounts, or else the surviving spouse will LOSE the “unused” exemption amount of their earlier deceased spouse. Please alert loved ones and friends that NOT all ONLINE/SOFTWARE or even NON-SPECIALIST-lawyer-drafted wills or trusts include provisions that “use” or “preserve” these exemption amounts properly.)

The new law signed today does the following:

1. as of 7/1/25, increases from $2.193 million to $3 million the amount each Washington resident or non-resident real property owner can gift at death free of Washington estate tax (meaning a married couple can gift at least $6 million tax-free over their two deaths with the proper documents);
2. as of 7/1/25, increases to $3 million the ADDITIONAL amount a Washington decedent can exempt from estate tax for certain family-owned business interests passed at death (provided the decedent’s total business interest does not exceed $6 million);
3. as of 7/1/25, increases from 20% to 35% the maximum tax rate on estates exceeding the exemption amount(s);
4. as of 7/1/25, permits NON-family beneficiaries who are employed by a family farm to benefit from the above additional exemption for family-owned business interests, if they inherit those farm interests at death (a benefit presently available only to family heirs);
5. as of 1/1/26, increases both of the above $3 million exemption amounts each January 1 as the Seattle-area consumer price index increases; and
6. retroactive to 1/1/25, increases from 7% to 9.9% the tax on capital gains of $1 million or more (after a deduction of $270,000) per person per year.

Two resulting examples:

An unmarried family farmer dying on or after 7/1/25 with a family farm worth $5 million and total assets of $11 million could gift the farm interest at death to a qualified family heir or non-family employee, taking a deduction of $6 million (made up of $3 million of ordinary exemption and $3 million of additional family-owned business exemption, because the business itself is not worth more than $6 million total). This farmer would have a taxable estate of $5 million and pay less estate tax than he or she would pay if he or she died before 7/1/25.

A married couple with a family business worth $13 million and total assets of $36 million would receive combined total exemptions of $6 million and each pay tax on his or her $15 million share of the $30 million taxable estate. (They would NOT receive any of the additional $3 million exemption for the family-owned business, because each spouse’s share of the $13 million value exceeds $6 million.) Before July 1, 2025, each spouse’s $15 million estate would pay Washington estate tax of $2,690,000 (or $5,380,000 for both spouses combined), with top marginal rates of 20%. As of July 1, 2025, each spouse’s $15 million estate would pay Washington estate tax of $4,030,000 (or $8,060,000 for both spouses combined), with top marginal rates of 35%.

Please contact us if you or a loved one needs to review or create your estate plan. Submitting this simple, new form on our website is the quickest way to initiate an estate planning matter with us, especially for new clients, but even for current clients: https://mckarcherlaw.com/contact-us.

All my best, Josh

Dear Clients & Friends,

If you are interested in news indicated by the subject line, please see the attached PDFs and follow the below hyperlink to follow a brand new bill introduced this week in the Washington legislature and immediately fast-tracked to and by the most powerful state Senate committee. 

SB 5813 – Washington State Legislature

The bill proposes to increase the Washington estate tax retroactive to January 1, 2025. 

The individual exemption amount would raise to $3 million from the current exemption amount of $2,193,000. But the top tax rate would also increase from 20% to 35%.

The same bill would also increase the state capital gains tax implemented a few years ago and approved by the state Supreme Court.

I am working to discover whether this is a real part of the legislative majority’s revenue plan that the governor would actually consider, or if this is perhaps just some senators attempting, for example, to “force” others to “say no” to this brand of revenue generation. (I do not consider that a statement of my politics, by the way, but simply a recognition of the way ALL politics “happen” in the give and take rough and tumble of a democratic republic.)

If you wish to stay closely attuned on this issue, click the link and find the green button to get email updates as the bill progresses. The emails are unobtrusive, short, and informative. I follow several bills each year using this function. 

I will obviously be following this closely and will send updates if this bill actually progresses.

Best, Josh

Dear Clients and Friends,

If you have not yet heard of the federal Corporate Transparency Act or the requirement of many business entities to file a Beneficial Ownership Information Report with FinCEN (Financial Crimes Enforcement Network within the U.S. Dept. of Treasury), then you may wish to familiarize yourself at least briefly with the key points of this new federal reporting requirement.

However, if you own, manage, or control any business entity, then you must ensure before the end of December that you confirm that the business entity, unless exempt from reporting, has accurately analyzed your role and whether you are required to be included in the entity’s report.

Despite litigation you may have heard about, nothing has changed the relevant requirements or upcoming deadlines under this law.

The vast majority of our clients will not be subject to this reporting regime. Trusts and wills are not business entities to which the law applies.

A trust or probate estate may, however, be a beneficial owner of a business entity. If so, and if the business entity is required to report, then the trustee(s) and/or beneficiaries of the trust may need to be included on the report.

Like most federal law or business reporting regimes, the details can be complex. However, an excellent place to start is FinCEN’s surprisingly effective and nicely organized FAQ page located here: https://www.fincen.gov/boi-faqs, or the main page for the BOIR process: https://www.fincen.gov/boi.

I expect that the vast majority of entities required to file a BOIR are either doing so themselves or through the entity’s accountant.

However, if you require legal analysis of the elaborate set of rules applicable to non-exempt business entities, please contact us with the information you believe is relevant to the analysis, or put us in touch with the entity’s accountant or employee charged with this task.

As ever, if you have any questions or believe your circumstances are changing, please email or call us anytime.

Best, Josh

Dear Clients and Friends,

Today the Washington Supreme Court ruled 7-2 to UPHOLD Washington’s 7% tax on the sale of assets that generate capital gains in excess of $250,000 in a calendar year. The tax took effect on January 1, 2022, and the first payments are due on or before April 18, 2023.

See below for links to the state’s very helpful website addressing the tax’s applicability, today’s court opinion (majority and dissent), and our top-level overview of what you should do “now.”

We will analyze the opinion and provide a more detailed client advisory and summary in the coming days, including for how this opinion might apply if the Legislature passed a generally applicable income tax.

For now, please consider if you may owe this tax and have a filing requirement due April 18, 2023 for capital gains generated from sales that you made during 2022.

➤ Note the key word sales. This tax does not apply to unrealized gains on assets that are not sold.

➤ This will require analysis by your financial advisor and/or CPA, if you’re unsure if “your” capital gains are the kind that are “taxable” capital gains.

➤ Please note that this tax is not applicable to gains from real estate sales or to gains generated inside retirement accounts like IRAs and 401(k)s.

More immediate information is available on this State of Washington website: https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax.

➤ If you scroll down on that page, you will see boxes to expand for Exemptions, Deductions, and Credits that you will find very helpful.

➤ These boxes will likely address the majority of your questions now that this tax is affirmed and fully effective.

➤ Also review the information and links on the right-hand side of the webpage under “Additional resources.”

Please contact us if you or your CPA or financial advisor need assistance determining applicability of this tax to a given asset sale.

Click here if you wish to read the court’s opinion in its entirety.

Stay tuned for a separate analysis and advisory in the coming days.

All my best, Josh

Dear Clients and Friends,

Please read and consider the below and, if potentially applicable to you, call or email us outlining your specific facts so that we can advise you.

If one of your grandchildren or loved ones has been adopted, your grandchild or loved one could be disinherited from your estate without you realizing it.

Imagine if your adult child dies, and your in-law remarries. Imagine that you get along well with the new spouse and are grateful for their care of your grandchildren in your deceased child’s absence.

Imagine also that eventually the new spouse adopts your grandchildren for any of the many tax, legal, educational, or other reasons that you understand and approve.

Suddenly, your grandchildren are disinherited from your own estate.

Adoption of a person terminates the parental relationship of one or both of the adopted person’s natural parents. The adopted person is no longer the legal “heir” or descendant of the “bloodline” ancestors of each natural parent whose relationship is terminated by the adoption.

You must consider this in your estate planning; this cannot be fixed after you die. Your documents must specify what you want to happen in these situations.

We are fortunate not to have encountered any of these unusual situations, but are learning of sad outcomes in other families and want our clients to avoid unintended outcomes.

Pause to consider whether you have:

➤ “bloodline” grandchildren (or nieces/nephews or other relatives) who have been adopted in a manner that terminated the adopted child’s ability to benefit from your estate?

➤ “non-bloodline” grandchildren (or nieces/nephews or other loved ones) who you want to benefit from your estate but who are not formally adopted by your bloodline relative?

As a general rule, remember that all national authorities on estate planning recommend reviewing your plan with your attorney:

➤ every 3 to 5 years (5 at most), even if you think nothing material has changed;

➤ immediately whenever you change from having no minor children to having even 1 minor child; and

➤ after any death, adoption, divorce, or other event that is not birth or marriage of any blood relative OR any person you want included in your plan who is not a blood relative.

You do not have to schedule a meeting for us to analyze these issues. You can send an email to us at team3345@mckarcherlaw.com or call us 24/7 at (509) 758-3345 and press 2 immediately to leave a voice message.

By either method, just state the relevant facts and reference the relevant names in your existing documents on file with us so that we can make a quick analysis.

We are always thrilled when we can reply to say, “No problem; no change needed.” And if a change is needed, it may be as minimal as adding a phrase to one sentence.

All my best, Josh