Estate Planning Before 2028: How Washington's Income Tax Changes the Calculus

Key Takeaways

• Washington adds 9.9% income tax effective 2028
• Double tax hits high‑net‑worth residents
• Pre‑2028 window crucial for GRATs, gifting, Roth conversions
• No portability forces bypass trusts for married couples
• Community property step‑up eliminates future Washington income tax

Pulse Analysis

Washington’s 2028 income‑tax rollout reshapes the wealth‑preservation playbook for the state’s affluent. While the 9.9% levy targets income above $1 million, it operates alongside a 10‑20% estate tax with a $2.193 million exemption and no portability. This dual‑tax structure erodes estate values both during life and at death, prompting advisors to prioritize actions that remove assets from the taxable estate before the new levy begins. The urgency is amplified by the looming federal exemption sunset, which could further tighten the tax landscape.

In this narrow pre‑2028 window, classic tools gain fresh relevance. Grantor Retained Annuity Trusts (GRATs) become especially attractive because trust income remains subject only to federal tax before the state levy, preserving appreciation for beneficiaries. Accelerated gifting leverages the still‑high federal exemption, moving wealth out of both Washington’s income and estate tax bases. Irrevocable Life Insurance Trusts (ILITs) provide liquidity to cover looming estate‑tax bills, while Roth conversions lock in tax‑free growth without incurring the upcoming state income tax, saving roughly $100 k on a $2 million conversion.

Married couples face a unique challenge: Washington’s lack of portability means each spouse’s exemption is isolated, making bypass (credit‑shelter) trusts essential to preserve the first spouse’s exemption. Additionally, the state’s community‑property rules deliver a full step‑up in basis at the first death, eliminating future capital gains and associated Washington income tax. Together, these nuances create a high‑stakes, time‑sensitive planning horizon where proactive moves can shave millions off a $20 million estate’s total tax burden.