Federal Estate Tax vs. Washington Estate Tax: Understanding Form 706

The federal estate tax and the Washington State estate tax operate as two completely separate systems. They have different exemptions, different rate tables, different forms, different agencies, and critically different filing obligations. Understanding the gap between them is the most important strategic insight for anyone administering a mid-sized Washington estate.

The Federal Side: Form 706 and the $15 Million Shield

The federal estate tax is reported on IRS Form 706 (United States Estate and Generation-Skipping Transfer Tax Return). For 2026, the federal lifetime exemption is $15,000,000 per individual — shielding the overwhelming majority of American estates from any federal tax liability. Married couples can shelter up to $30 million through portability (the surviving spouse can claim the deceased spouse's unused exemption by filing a timely Form 706).

The federal estate tax rate on amounts exceeding the exemption is a flat 40%.

Who must file IRS Form 706: An estate with gross assets plus prior taxable gifts exceeding $15,000,000 in 2026. Most Washington estates, even those with substantial real estate holdings, do not reach this threshold. However, Form 706 must also be filed to elect portability — meaning the executor of a married decedent's estate must file the federal return even if the estate owes zero federal tax, simply to preserve the surviving spouse's ability to use the deceased spouse's unused exemption.

The Form 706 deadline is nine months from the date of death, with an automatic six-month extension available to 15 months.

TCJA sunset risk: The current $15 million exemption was established by the Tax Cuts and Jobs Act of 2017. Without congressional action, the exemption is scheduled to revert to approximately $5-7 million (indexed for inflation) when the TCJA provision expires. Estates being administered now for individuals who did substantial lifetime gifting should model both current and post-sunset scenarios.

The Washington Side: A Completely Separate Tax

Washington State imposes its own estate tax under RCW 83.100, administered by the Washington Department of Revenue (DOR) — not the IRS. The Washington estate tax is filed on the Washington Estate and Transfer Tax Return (not Form 706), submitted through the My DOR portal or by paper depending on the year.

For 2026, the Washington applicable exclusion:

• $3,076,000 for decedents dying January 1 through June 30, 2026
• $3,000,000 for decedents dying July 1, 2026 and later

The legislative mechanism that annually adjusted this threshold for consumer price inflation has expired. The $3 million figure is now frozen indefinitely, unless the legislature acts.

The Washington estate tax rate table (Table W) is graduated:

• Before July 1, 2026: 10% on the first $1 million of taxable estate, escalating to a top rate of 35% on amounts over $9 million
• July 1, 2026 and later: 10% through 20% on the same brackets

These are state-only rates on top of the regular administration of the estate. A family with a $5 million estate owes zero to the IRS in 2026 — and potentially $300,000-$400,000 to Olympia.

The Critical Gap: Estates That Owe State Tax Only

The disconnect between the $15 million federal threshold and the $3 million Washington threshold creates a substantial category of estates that owe:

• Zero federal estate tax (because they're far below $15 million)
• Significant Washington estate tax (because they exceed $3 million)

A family with a $6 million estate — modest by wealth management standards, but not unusual for a long-time Seattle homeowner with a brokerage account and business interests — owes nothing to the federal government and potentially $450,000-$600,000 to the state of Washington, depending on the date of death and allowable deductions.

This surprises executors who expected the estate tax to be a "rich person problem." Washington's $3 million threshold means that any estate containing a paid-off home in a major metro area, a retirement account, and substantial savings can easily qualify.

Portability: Federal Yes, Washington No

Federal law allows portability. If the first spouse to die doesn't use their full $15 million federal exemption, the surviving spouse can add the unused portion to their own exemption by filing a timely IRS Form 706 for the first spouse's estate.

Washington categorically rejects portability. The deceased spouse's Washington exclusion is permanently forfeited if it is not used at death. If the first spouse leaves everything to the surviving spouse via the unlimited marital deduction, zero Washington estate tax is owed at the first death — but the first spouse's $3 million exclusion disappears forever.

When the surviving spouse later dies with a combined $6 million estate, they only have their own $3 million exclusion. The remaining $3 million will be taxed under Table W — generating state taxes that planning could have eliminated.

The standard planning solution is a Credit Shelter Trust (also called a Bypass Trust or A/B Trust): at the first spouse's death, $3 million flows into an irrevocable trust, using the deceased spouse's exclusion. The trust is permanently outside the surviving spouse's taxable estate. The couple has now effectively shielded $6 million from Washington estate tax rather than $3 million.

Because Washington does not have a state gift tax, wealthy residents also use annual federal gift exclusions ($19,000 per donee in 2026) to systematically reduce their estates below the threshold during their lifetimes.

When Executors Must File Both Form 706 and the Washington Return

An estate must file IRS Form 706 when:

• The gross estate plus prior taxable gifts exceeds $15,000,000; or
• The executor elects portability, regardless of estate size

An estate must file the Washington Estate and Transfer Tax Return when:

• The gross estate exceeds $3,076,000 (through June 30, 2026) or $3,000,000 (July 1, 2026 onward)

For estates valued between $3 million and $15 million — which represents a significant majority of Washington estates that face any tax obligation — only the Washington return is required. For estates above $15 million, both returns are required, but the Washington return presents the more complex calculation given its lower threshold and the lack of portability.

The Washington return is due nine months from the date of death. The federal Form 706, if required, is also due nine months from the date of death. Both deadlines arrive at the same time and demand significant documentation — appraisals, complete asset inventories, community property characterization, and deduction schedules.

The Washington Final Tax & Estate Tax Guide covers the complete filing sequence for both the Washington estate tax return and the federal obligations, including how to calculate the gross estate, apply Washington-specific deductions, and meet the nine-month deadline without triggering interest and penalties.

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