Washington State Enacts Tax Reforms: Estate and Capital Gains Changes Now Law

On May 20, 2025, Governor Bob Ferguson signed into law a sweeping set of tax reforms aimed at addressing Washington State’s projected budget shortfall. Among the most impactful changes are updates to the estate tax and capital gains tax, as outlined in Senate Bill 5813. These changes could significantly affect tax planning strategies for many Washington residents, especially high-net-worth individuals and families.

 Key changes to the state estate tax

Effective July 1, 2025, Washington’s estate tax will undergo two major revisions:

• Increased Exemption Amount: The estate tax exemption will rise from $2.193 million to $3 million per person, with annual inflation adjustments beginning in 2026. This long-overdue update helps account for inflation and may reduce estate tax exposure for many households. Many middle-wealth households previously subjected to the tax will now have relief.
• Higher Tax Rates for Larger Estates: While the exemption increase offers relief for some, the tax brackets have also been revised. Estates over $9 million will now face a top marginal rate of 35%, up from 20%, making Washington’s estate tax the highest at the state level and in the nation.

 Capital gains excise tax: Now more progressive

Washington’s capital gains tax, first enacted in 2022, originally imposed a 7% tax on long-term capital gains exceeding a standard exemption ($270,000 for 2024, with 2025 adjustments pending). Under SB 5813:

• A new 2.9% surtax applies to net long-term capital gains over $1 million, bringing the top effective rate to 9.9%.
• This change is retroactive to Jan. 1, 2025, meaning it may affect transactions already completed this year.

Broader tax adjustments

In addition to estate and capital gains taxes, the legislation includes increases to business and occupation (B&O) taxes, sales taxes, and taxes on luxury goods and electric vehicles. These changes are designed to boost funding for the state’s Education Legacy Trust Account and other budget priorities.

What this means for you

While overall these tax reforms are designed to increase revenue for the state of Washington, the individual impact to each Washingtonian will vary. These tax reforms may have a meaningful impact on your estate planning, investment strategy, and overall financial plan. Whether you’re considering a large asset sale, planning your legacy, or simply want to understand how these changes affect your long-term goals, now is the time to review your strategy. Reach out to your advisor to discuss how these tax reforms might impact your financial plan.

At Mercer Advisors, we specialize in helping clients navigate complex tax environments. We don’t just analyze tax strategies; we quantify their impact on your financial plan and help you implement them with confidence. If you know someone that can benefit from holistic wealth management, please let us know.

If you’re a Washington resident and not currently a client of Mercer Advisors, we’d love to help you navigate these changes. Let’s talk.

Sources:
Washington State Legislature – Senate Bill 5813
Washington Policy Center
FastDemocracy Bill Tracker

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