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

Published on Mar 26, 2026 — 10 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 on March 24, 2026, rolling back Washington's estate tax top rate from the 35% then in effect to 20% for decedents dying on or after July 1, 2026 — a rollback now in effect. The bill passed in the final hours of the session, 85-8 in the House and 39-10 in the Senate. 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 rates in effect for deaths between July 1, 2025 and June 30, 2026 (before SB 6347's rollback took effect) ranged from 10% to 35% depending on the taxable estate value. Those brackets were:

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:

No Washington estate tax is due if the applicable deductions and exclusion leave no positive Washington taxable estate. The rate brackets apply to the remaining Washington taxable estate.
Rates now escalate to a maximum of 20%
The exemption is $3,000,000 for deaths from July 1 through December 31, 2025, and $3,076,000 for deaths from January 1 through June 30, 2026 (under SB 5813's $3M base, indexed annually); for deaths on or after July 1, 2026, SB 6347 resets the exemption to $3 million — and because the bill ties future indexing back to the discontinued Seattle–Tacoma–Bremerton CPI (the same defunct index that froze the old $2,193,000 exemption after 2018), the $3 million figure is effectively frozen unless the legislature fixes the reference

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: Congress retroactively reinstated federal estate tax for 2010, while allowing executors to elect no estate tax with modified carryover-basis treatment. 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 ($3,000,000 for deaths July 1–December 31, 2025 and $3,076,000 for deaths January 1–June 30, 2026, under SB 5813; $3 million — effectively frozen, per the defunct-index mechanism described above — for deaths on or after 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: Estate tax collections ran roughly $1.25 billion in the 2023–25 biennium, according to the Department of Revenue, and the fiscal note for SB 6347 projects the rollback will reduce collections by $41 million in the current budget and roughly $341 million in the 2027–29 biennium. That 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:

Use the exclusion correctly: Washington’s estate-tax exclusion applies when calculating the Washington taxable estate; it is not subtracted a second time from that taxable amount. If the applicable deductions and exclusion leave no positive Washington taxable estate, no Washington estate tax is due. Washington has no portability between spouses, so coordinated estate planning, which may include a credit-shelter trust, can help preserve each spouse’s exclusion. Lifetime gifting is a separate planning tool. See the statutory definition of Washington taxable estate.

For larger estates, the math has improved but still matters: The cut is a top-bracket story: every dollar of taxable estate above $9 million was taxed at 35 cents under SB 5813 and is taxed at 20 cents for deaths on or after July 1, 2026 — a 15-point cut precisely where large estates hold most of their value. 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: Death benefits are generally excluded from federal income under IRC §101, but that does not make them exempt from estate tax. Proceeds payable to the estate, or from a policy in which the insured retained incidents of ownership, can be included in the gross estate under IRC §2042. A properly structured insurance trust may keep proceeds outside the insured’s estate, but transferring an existing policy can trigger the three-year inclusion rule. Account for ownership and estate inclusion when sizing coverage to provide liquidity and help heirs retain a business.

Charitable giving: A qualifying estate-tax charitable deduction reduces the taxable estate, not the tax bill dollar-for-dollar. For example, a $100,000 deduction entirely within the 20% marginal bracket would reduce tax by $20,000, ignoring other adjustments. A charitable remainder trust does not generate an estate-tax deduction for its entire value: only the qualifying charitable interest is deductible, subject to IRC §2055. Evaluate the particular charitable vehicle and deduction requirements before estimating savings.

Intentional gifting strategy: Washington has no state gift tax. Its approximately $3 million estate-tax exclusion applies at death; it is not a lifetime gift-tax allowance. Completed gifts that are outside the federal gross estate can reduce the Washington estate-tax base and remove future appreciation. Retained interests or powers can cause estate inclusion, and federal gift-tax, reporting and income-tax basis consequences still require separate analysis. Trusts and family entities need careful structuring rather than an assumption that every transfer escapes estate tax.

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. Value the specific ownership interest at fair market value. Any discount for lack of control or marketability must be supported by the interest’s rights and facts; forming a family entity does not itself establish a discount.

Section 754 elections: For an entity taxed as a partnership, including an LLC so classified, a §754 election in effect at a partner’s death generally triggers the transferee-specific inside-basis adjustment under §743(b). The adjustment compares the heir’s basis in the partnership interest with the heir’s share of the partnership’s adjusted asset basis; it can increase or decrease basis and applies only with respect to that transferee. A substantial built-in loss can require an adjustment even without the election, subject to statutory exceptions. The election does not itself reduce estate tax or guarantee income-tax savings. Model the adjustment and the election’s continuing effects before deciding.

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 may owe no federal estate tax, depending on prior taxable gifts and the available exclusion and deductions, 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.

Reviewing your Washington estate plan? Book a 20-minute call with Joe Wallin or email wallin@carneylaw.com.