How You Hold Property Matters: Washington Estate Tax Planning for Residents and Non-Residents

The method by which you hold your assets can dramatically impact your exposure to the Washington State estate tax, particularly for real property. Estate planning should look beyond simple ownership and consider entity structures to optimize tax treatment.

For Washington Residents with Out-of-State Real Property:

Washington residents who own real estate in other states often find it beneficial to hold that property in a Revocable Living Trust. This common strategy helps the estate administration process by preventing the need for an ancillary probate (a separate probate process) in the state where the property is located. While this is primarily an administrative benefit, it highlights the importance of property holding methods in streamlining the transfer of assets upon death.

For Non-Residents with Washington Real Property:

Non-residents who own real estate in Washington must be aware that this property is generally subject to Washington’s estate tax. However, a significant tax-planning strategy involves holding the Washington real estate in a Limited Liability Company (LLC). By placing the real property into an LLC, the “owned asset”  for tax purposes, is intangible personalty (like a membership interest in a business), rather than real estate. Intangible personalty owned by a non-domiciliary of Washington is typically not subject to Washington’s estate tax, providing a substantial planning opportunity to shield these assets.