On May 20, Washington State Governor Bob Ferguson signed Engrossed Substitute Senate Bill 5813, reshaping parts of Washington’s capital gains and estate tax regimes. The new tax law affects families with a net worth of over $5 million and may require additional tax and estate planning to minimize Washington state tax exposure. The following is a summary of the changes in the law and Washington State’s Department of Revenue guidance.
Capital Gains Tax—New 9.9% Top Rate
Washington’s 7% excise tax on long‑term capital gains is now paired with an additional 2.9% on annual gains above $1 million, bringing the top rate to 9.9%. The capital gains tax rate change applies retroactively to sales on or after January 1, 2025. The existing 7% tax still applies to gains over $250,000; the surtax only applies once total long‑term gains cross $1 million in a year.
Estate Tax—Higher Exemption, Higher Top Bracket
For decedents dying on or after July 1, 2025, the estate tax exemption increases to $3 million (from $2.193 million). Beginning in 2026, the exemption will index annually to CPI. Estate tax rates remain progressive, ranging from 10% to an increased top rate of 35%, with the 35% top rate applying when the taxable estate exceeds the exemption by more than $9 million.
Additional changes include:
- The qualified family‑owned business deduction increased to $3 million.
- Certain non‑family heirs of farms can now access farm‑related estate tax deductions.
Key Washington Distinctions
- No portability of the state exemption between spouses.
- No Washington gift tax (lifetime gifts remain a federal—not state—issue).
Planning Considerations for $5–$50 Million Estates
- Transaction pacing in 2025: With retroactivity now set, focus on loss harvesting, charitable strategies (including donor‑advised funds and CRTs), and basis management ahead of major liquidity events.
- Estate liquidity: Revisit life insurance, buy‑sell arrangements, and trust distributions to fund potential state liabilities at higher brackets.
- Lifetime transfers: Strategic gifting of appreciating assets can reduce the Washington taxable estate without triggering a Washington gift tax (mind federal limits and basis trade‑offs).
- Closely held businesses and farms: Confirm eligibility for the enhanced $3 million deduction and the new farm‑heir provisions; entity structure and valuation methodology matter.
- Spousal planning: Because there is no portability, credit‑shelter trusts and community/separate property titling should still be utilized to maximize the state exemption.
This summary reflects ESSB 5813 as passed; administrative guidance and technical corrections may follow. To understand how the new tax laws may affect you, we can model scenarios and coordinate with your tax advisor and estate planning attorney.
Sources: Statute / Session Law (ESSB 5813, Chapter 421, Laws of 2025), Washington Department of Revenue, Washington Policy Center