The Estate Tax Spousal Personal Residence Exclusion
Effective January 1, 2025, Washington State introduces a significant update to its estate tax regulations: the Estate Tax Spousal Personal Residence Exclusion. This provision allows married couples or registered domestic partners to exclude the value of their personal residence from the gross estate calculation when determining the necessity of filing an estate tax return.WASHINGTON DEPARTMENT OF REVENUE
Understanding the Personal Residence Exclusion
The personal residence exclusion is solely for assessing whether an estate meets the filing threshold; it does not reduce the taxable estate’s value if other assets meet or exceed the threshold. For 2025, the estate tax filing threshold in Washington is $2,193,000.
WASHINGTON DEPARTMENT OF REVENUE
Defining a Personal Residence
A “personal residence” encompasses:
A house and the land it occupies.
A mobile home or park model affixed to a foundation on owned land.
A single-unit dwelling, such as a condominium.
A houseboat or floating home.
Leasehold properties, like cabins on government land.
Residences held in a Delaware Statutory Trust (DST) co-op.
Eligibility Criteria for the Exclusion
To qualify for this exclusion, the following conditions must be satisfied:
No Other Elections Required: The estate should not require other elections, such as a Qualified Terminable Interest Property (QTIP) trust. If a QTIP election is desired, filing is mandatory, regardless of the estate’s value.
Surviving Spouse: The decedent must have a surviving spouse. In cases of simultaneous deaths, the exclusion is inapplicable.
Residence Transfer to Surviving Spouse: The personal residence must pass directly to the surviving spouse, either outright or through an irrevocable trust (e.g., credit shelter or bypass trust) without a QTIP election.
Occupancy Requirement: Both spouses must have occupied the residence for at least six months in the year preceding death. Exceptions are made if either spouse was in long-term care, provided neither resided elsewhere for more than six months during that year.
Estate Value Below Filing Threshold: After excluding the decedent’s share of the personal residence, the remaining gross estate must be below the current filing threshold.
Practical Implications
Consider a scenario where a decedent’s half of the community property estate is valued at $3 million, including a $900,000 personal residence. By excluding the $450,000 share of the residence, the adjusted gross estate becomes $2,550,000. Since this exceeds the 2025 threshold of $2,193,000, an estate tax return is required.
Strategic Considerations
While this exclusion offers potential relief, it’s crucial to evaluate its applicability within the broader context of estate planning. Factors such as the desire to make QTIP elections, the total value of the estate, and specific family circumstances should guide decisions. Consulting with an estate planning professional is advisable to navigate these complexities effectively.
For comprehensive details, refer to the Washington Department of Revenue’s official page on the Estate Tax Spousal Personal Residence Exclusion.