Washington Reverses Estate Tax Hike After One Year
Washington Governor Bob Ferguson signed legislation reversing the state’s estate tax increase after just one year, reducing the top rate from 35% back to 20%.
What Happened
Washington Governor Bob Ferguson signed legislation on March 25, 2026, to reverse the estate tax increase his administration implemented just one year earlier. Senate Bill 6347 rolls back the top estate tax rate from 35% to 20% for estates valued at $9 million and above, after accounting for Washington's $3,076,000 exemption.
The original tax increase took effect July 1, 2025, as part of a broader package of tax hikes designed to address a multibillion-dollar budget shortfall. The legislation had raised the top rate from 20% to 35% while keeping the lowest rate at 10%. The reversal, which takes effect July 1, 2026, passed overwhelmingly in both chambers with margins of 85-8 in the House and 35-10 in the Senate, with all opposition votes coming from Democrats.
Ferguson acknowledged the policy reversal directly, stating that "sometimes we'll do things that aren't the best things" and emphasized the importance of being "open to adjusting." The governor cited concerns about Washington becoming "a significant outlier" in state tax rates as justification for the change. Supporters of the reversal argued the dramatic increase would drive wealthy residents to relocate and force family businesses to sell assets to minimize tax liability.
What It Means
Washington's estate tax reversal highlights the delicate balance states must strike between revenue generation and economic competitiveness. Washington remains one of the few states with an estate tax, but the policy whiplash demonstrates how quickly tax policy can shift when economic pressures mount. The state's estate tax applies to estates exceeding $3,076,000, significantly lower than the $15,000,000 federal exemption.
The financial implications extend beyond wealthy families to public education funding. Estate tax collections generated approximately $1.25 billion in the 2023-25 budget, with proceeds flowing directly to the Education Legacy Trust Account. The fiscal analysis for the reversal projects the state will collect $41 million less than planned in the current budget and $340.7 million less in the next biennium. This reduction forces lawmakers to find alternative revenue sources or reduce education spending.
For Washington families with substantial assets, the reversal provides immediate estate planning relief. While most estates under $100,000 avoid probate entirely through simplified procedures, larger estates benefit from the reduced tax burden. The change particularly impacts family-owned businesses and real estate holdings, which often struggle with liquidity when estate taxes come due. Estate planning attorneys will need to revisit strategies implemented during the brief period of higher rates.
Context from SimplyTrust
Washington's estate tax volatility underscores the importance of flexible estate planning strategies that can adapt to changing tax environments. Families with assets approaching the state's $3,076,000 exemption threshold should consider revocable trusts versus irrevocable trusts to maintain planning flexibility while potentially reducing tax exposure. The state's community property laws add another layer of complexity, as married couples can benefit from stepped-up basis rules that may reduce overall estate tax liability.
The reversal also highlights why regular estate plan reviews remain crucial. Tax law changes can quickly render existing strategies obsolete or create new opportunities for estate tax optimization. Washington residents should work with qualified professionals to ensure their plans remain aligned with current law and their family's evolving needs.
Source: Ferguson signs law to undo Washington estate tax increase enacted last year – OPB