Governor Ferguson Signs Estate Tax Rollback: 35% Applies Through June 30, 2026; 20% Returns July 1

Published on Mar 26, 2026 — 9 min read

Photo by John Zhou / Unsplash

Summary

Governor Ferguson signed SB 6347 rolling back Washington's estate tax from the temporary 35% top rate to the prior 20% rate. The 35% rate applies through June 30, 2026; 20% returns July 1.

Governor Ferguson Signs Estate Tax Rollback

Governor Ferguson signed SB 6347 into law, rolling back Washington's estate tax rate from the current top rate of 35% to 20% effective July 1, 2026. This is the first significant reduction in Washington's estate tax since the state adopted the tax in 2005 and represents a meaningful win for high-net-worth individuals and business owners in the state.

What SB 6347 Actually Does: The Rate Schedule Change

To understand the impact of SB 6347, you need to understand Washington's current estate tax structure. Washington's estate tax applies to the estates of residents with taxable estates exceeding certain thresholds. The tax is progressive—higher-value estates pay higher effective tax rates.

The current estate tax rates (before SB 6347) range from 10% to 35% depending on the taxable estate value. The tax brackets are:

10% on the first $1 million above the exemption
Rates escalate as the estate grows
35% on taxable estates exceeding certain thresholds

SB 6347 reduces these rates significantly. The new rate schedule, effective July 1, 2026, reduces the top rate from 35% to 20%. The new brackets are:

Taxable estates below the exemption: 0% tax
Rates now escalate to a maximum of 20%
The exemption is $3,076,000 for decedents dying through June 30, 2026 (under SB 5813's $3M base, indexed annually); on July 1, 2026, SB 6347 freezes the exemption at $3 million flat

This is a meaningful reduction for larger estates. The top rate bites only on taxable estate above $9 million, so the biggest savings go to estates large enough to reach it. A $10 million estate (about $7 million of taxable estate after the exemption) never reaches the top bracket, so the rollback saves it on the order of $200,000; an estate several times larger captures far more of the 15-point cut. For founders and business owners, that can translate directly into more wealth passing to heirs.

The History of Washington's Estate Tax Rate Increases

To understand why this rollback matters, it's helpful to know Washington's estate tax timeline:

2005: After the federal government phased out its credit for state death taxes, Washington enacted its own standalone estate tax, with graduated rates topping out around 19% and its own exemption (initially $1.5 million, soon $2 million) — set independently of, and well below, the federal exemption.

2010: The federal estate tax lapsed for that single year under the Bush-era tax law before being reinstated in 2011. Washington kept its own estate tax in place throughout, which created planning complexity for Washington residents.

2013–2014: The federal exemption settled at $5 million (indexed), while Washington’s stayed near $2 million — a wide and growing gap. Washington also raised its top rate to 20% and closed a marital-deduction (QTIP) loophole.

2015–2024: Washington’s rate structure held steady — graduated rates from 10% up to a 20% top rate on taxable estates above $9 million — and the exemption was frozen at $2,193,000 from mid-2018 onward.

2025: SB 5813 raised the exemption to $3 million (indexed) but jumped the top rate from 20% to 35% on taxable estates over $9 million — the highest estate tax rate in the country — effective July 1, 2025. Business groups and high-net-worth families pushed back hard, citing competitiveness against neighboring states (Idaho, Montana, and Nevada have no estate tax; Oregon does tax estates, but with a low $1 million exemption).

2026: SB 6347 passes and rolls back the top rate to 20%, a significant reduction from the recent 35% peak.

How Washington's Estate Tax Actually Works

For readers unfamiliar with estate tax mechanics, here's the essential framework:

Who pays it: An estate tax is owed by the estate of a Washington resident when they die. The executor or administrator of the estate is responsible for calculating, reporting, and paying the tax before distributing assets to heirs. Out-of-state residents who own real property in Washington may also owe estate tax on that property.

The exemption: Washington provides an exemption amount ($3,076,000 for decedents dying through June 30, 2026, under SB 5813; $3 million flat from July 1, 2026, under SB 6347). Only the value of the estate exceeding the exemption is subject to tax. An estate worth $4 million would have $1 million in taxable estate ($4 million minus the ~$3 million exemption), not the full $4 million.

Graduated rates: Like income tax, estate tax uses graduated rates. You don't pay 20% on the entire taxable estate; you pay 10% on the first bracket, then higher percentages on higher brackets, up to 20% on the highest bracket.

What's included: An estate includes all property you own at death—real estate, bank accounts, investments, retirement accounts (with some exceptions), life insurance proceeds, and business interests. It also includes certain gifts made within three years of death in some cases. The value is generally the fair market value on the date of death.

What's excluded: Property passing to a surviving spouse (with some limitations), charitable gifts, and certain transfers to specific trusts can be excluded or deducted. Unlike the federal system, Washington offers no portability — a surviving spouse cannot inherit the deceased spouse’s unused Washington exemption, so using both spouses’ exemptions generally requires credit-shelter (bypass) trust planning.

Why the Rollback Happened: Politics and Revenue Concerns

The timing of SB 6347 reflects several convergent factors:

Political shifting: Washington's legislature has become more concerned with business competitiveness and wealth retention. The state competes with neighboring states and other jurisdictions for wealthy residents and entrepreneurs. An extremely high estate tax can motivate relocation.

Revenue concerns: While estate tax revenue was projected to increase as the rates rose, actual collections have been modest—roughly $300-400 million annually. This is small relative to Washington's overall budget, but the political battle over the tax has been significant. Reducing rates while maintaining the tax itself is a political compromise: progressives keep the tax in place, but business-aligned legislators achieve rate relief.

Federal dynamics: For years, planners braced for the federal exemption to be cut roughly in half at the end of 2025. Instead, the One Big Beautiful Bill Act (July 2025) made a $15 million-per-person exemption permanent and indexed. So fewer estates face federal tax than feared — but Washington’s far lower ~$3 million threshold still reaches many families the federal tax never touches, which kept pressure on the state rate.

Business owner pressure: Founders with illiquid business interests in Washington have been among the most vocal critics of the high estate tax. An estate tax of 35% on an illiquid business can force the sale of the business or a partial sale to pay the tax bill. The rollback to 20% reduces this pressure, though it doesn't eliminate it.

How Washington's Estate Tax Compares to Other States

Washington's estate tax, even at the reduced 20% rate, is now more favorable than it was but remains in the middle range nationally:

No estate tax: Most states have no state estate tax at all, including Idaho, Montana, Nevada, California, Florida, and Texas. This is a major advantage for wealthy individuals in those states. (Oregon, by contrast, does tax estates, with a low $1 million exemption.)
Lower rates: A few states (Massachusetts, Connecticut, Illinois) have modest estate taxes with rates in the 10-16% range.
Higher rates: Besides Washington, the only state taxing estates at a 20% top rate is Hawaii (on estates above $10 million); a cluster of states, including Vermont (a flat 16%), reach a 16% top rate. New Hampshire has no estate tax at all, and Maine’s top rate is 12%.
Washington at 20%: After the rollback, Washington's 20% top rate is higher than most states with an estate tax but significantly better than the pre-rollback 35% rate.

For context: a founder with a $50 million estate in Washington will owe roughly $9.1 million in state estate tax (on about $47 million of taxable estate above the ~$3 million exemption) — an effective rate just under the 20% top marginal rate. The same founder in Texas, Nevada, or Florida, which have no estate tax, would owe zero.

Practical Planning Implications for High-Net-Worth Individuals

The estate tax rollback changes planning calculations for Washington residents, but it doesn't eliminate the need for estate planning. Here's what matters:

The exemption is still the most powerful tool: Using your exemption—through trusts, strategic gifting, or spousal portability—is the first priority. If you can keep your taxable estate below the exemption (~$3 million), estate tax is zero regardless of the rates.

For larger estates, the math has improved but still matters: An estate that would have owed $3.5 million at a 35% rate now owes $2 million at 20%. That's real money, worth planning for.

Liquidity is still a concern: Even at 20%, an estate tax bill requires cash or liquid assets to pay. An illiquid founder with all wealth in private equity still faces the same liquidity challenge; the tax amount is just smaller.

Strategies for Founders with Large Equity Positions

For founders whose net worth is concentrated in private company shares, several strategies can reduce or defer estate tax:

Life insurance: A life insurance policy with a death benefit equal to the projected estate tax bill provides tax-free money (to the estate or an insurance trust) to pay the tax. This is commonly used by founders who want heirs to keep the business rather than forcing a sale to pay taxes.

Charitable giving: Gifts to qualified charitable organizations can be deducted from the taxable estate, reducing the tax liability dollar-for-dollar. A founder who cares about philanthropy can use charitable vehicles (donor-advised funds, charitable remainder trusts) to reduce estate tax while supporting causes they care about.

Intentional gifting strategy: The exemption (~$3 million) can be used during life through gifts or through a trust-based structure. Founders with businesses likely to appreciate significantly can gift equity now at a lower value, and the future appreciation escapes the estate. With proper structuring (family limited partnerships, intentionally defective grantor trusts), this can be tax-efficient.

Credit-shelter (bypass) trusts: Washington has no portability, so a surviving spouse cannot simply use the deceased spouse’s unused Washington exemption. Funding a credit-shelter (bypass) trust at the first death is how married couples preserve both ~$3 million exemptions — sheltering up to roughly $6 million from Washington estate tax instead of just one spouse’s exemption.

Business succession planning: If the business will continue after your death (perhaps run by co-founders, children, or a management team), the value of the business at your death is what matters for estate tax. Structures that allow the business to be valued at a discount to its actual value (such as family limited partnerships for a business with passive investors) can reduce the taxable value and thus the tax bill.

Section 754 elections: For a business taxed as a partnership or LLC, a Section 754 election lets the partnership step up the inside basis of the deceased owner’s share of the assets for that owner’s heirs (under §743(b)) — which can save substantial income tax when those assets are later sold. It doesn’t reduce estate tax, but it improves the after-tax result for the heirs who inherit the interest.

Interaction with Federal Estate Tax

Washington residents must also consider federal estate tax. The federal exemption is $15 million per person for 2026 ($30 million for a married couple), made permanent and indexed by the One Big Beautiful Bill Act in July 2025 — so the long-anticipated sunset to roughly $7 million did not happen.

A $10 million estate therefore owes no federal estate tax, but still owes Washington estate tax on the amount above the state’s ~$3 million exemption. For larger estates, coordinating the two — through gifting, insurance, and trust structures — is essential for founders with significant wealth.

The federal and Washington taxes apply to the same assets, but they interact in one important way: Washington estate tax paid is deductible on the federal estate tax return (under §2058), which softens the combined burden. Careful coordinated planning is still necessary.

What You Should Do Now

If you have significant wealth in Washington and no current estate plan, or if your plan is outdated, now is the time to review with an estate planning attorney. The reduced rate is positive, but it's not a reason to delay planning. Here's what to consider:

Get your estate valued: You need to know your current net worth to understand whether estate tax is a concern.
Review or create an estate plan: A basic will and revocable trust should be the minimum. High-net-worth individuals should consider whether irrevocable trusts, charitable vehicles, or business succession structures make sense.
Coordinate with business structure: How is your company structured (C corp, S corp, LLC, partnership)? Some structures are more estate-tax-efficient than others.
Use your exemption strategically: Because Washington has no portability, married couples usually need credit-shelter (bypass) trust planning — not federal-style portability — to preserve both exemptions.
Plan for liquidity: If your estate will be illiquid, consider life insurance or other mechanisms to provide tax-payment cash.

The rollback to 20% makes estate tax somewhat more palatable, but it remains a significant cost of death in Washington. Proper planning can reduce or eliminate this burden for heirs.

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This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.