Last updated on September 22nd, 2023 at 09:19 pm
Estate taxes can be confusing. Many estates include assets that are hard to assign a dollar value. All the same, you need to know what each asset is worth to know what taxes are due.
In this blog post, we will go over the basics of estate taxes in Washington State and whether you need an appraisal. However, you should still talk to a CPA to understand the tax implications of the estate you are responsible for.
How Estate Taxes Work in Washington State
Estate taxes come into play when someone passes away and transfers assets to their heirs. However, not every estate is taxed.
Washington State’s estate tax only applies to estates worth over $2.192 million. There is also a federal estate tax that applies to estates worth over $12.92 million.
Estate taxes are slightly different from inheritance taxes. While estate taxes apply to the deceased person’s ability to transfer property, inheritance taxes apply to the heirs. The estate’s personal representative or executor deals with the estate taxes, not the heir (unless they are also the personal representative).
Washington State does not have an inheritance tax. If you inherit money or property while living in Washington, you don’t owe Washington taxes on your inheritance. However, you will need to think about estate taxes if you plan or execute an estate. You may also have additional taxes to consider if either the decedent or an heir lives in another state.
You must file a Washington estate tax form if you are the personal representative or executor of an estate that meets these requirements:
- The gross value of the estate is over the filing threshold.
- The decedent was either a Washington resident or someone who owned tangible personal property in Washington.
If the estate meets the above requirements, you must file even if no taxes are due. However, you don’t need to file an estate tax return if the estate is under the filing threshold.
Keep in mind that a deceased person’s estate includes more than just their money, investments, and real estate. It also includes valuable items such as art and antiques, interests in businesses, life insurance policies, assets jointly owned with others, vehicles, royalties, pensions, refunds, annuities, and more.
As of 2023, Washington estate tax rates start at 10% on additional value up to $1 million over the estate tax threshold. There are progressively higher tax rates on larger estates, with 20% on the top tax bracket. These rates and their thresholds may change in the future.
Do You Need an Appraisal for Estate Taxes?
A professional appraisal tells you the fair market value of personal property assets. You need to know what the decedent’s personal property is worth before you can find out what taxes are due and what to distribute.
When you are executing an estate, the first thing you should do is seek the professional advice of a lawyer. However, you may also need an appraiser’s help. If the decedent lived or owned property in Washington and you think the estate may be worth over $2.192 million, you should definitely get an appraisal. It’s also a good idea to get an appraisal if you are planning your own estate.
You may need to hire different appraisers to value different assets:
Real estate. If the decedent owned a home, land, or other personal real estate, you will need a real estate appraiser. Current real estate values are often quite different from the original purchase price or the most recent assessed value for tax purposes.
Businesses. Valuing a business involves revenue, profitability, assets, market conditions, and more. You will need a specialized appraiser to assess the decedent’s business shares. The appraisal document will help prevent disputes with tax authorities and ensure fair distribution among heirs.
Investments. Stocks, bonds, and other investments are often a large part of the estate. If you think the estate may be above the estate tax threshold, you may need an appraiser who deals with investments.
Personal Property. Estates include any antiques, art, and other items owned by the decedent. If there are any financially valuable items in the estate, you will need an appraiser who specializes in those types of items.
How to Choose an Appraisal Company
Choosing a qualified appraiser helps you get an accurate valuation of personal property. With professional appraisal documents and a lawyer’s advice, it’s much easier to avoid messy situations with the IRS or heirs. Here are some key factors to consider before you hire anyone.
- Experience: Look for a company that has experience with estate appraisals. They should know how to value the kinds of assets in the estate.
- Credentials: Ensure the appraisal company holds accreditation from an outside body, such as the International Society of Appraisers (ISA). Accreditation usually requires appraisers to meet certain ethics, knowledge, and IRS report writing standards.
- Local Knowledge: Opt for a company with a deep understanding of the local market. Local expertise can make a significant difference in valuing assets accurately, especially in real estate.
- Client Reviews, Testimonials, and References: See what previous clients have to say about the appraisal company’s reliability.
Navigating estate taxes in Washington State can be difficult, especially if you’re dealing with a complex estate. A professional appraisal can help you find out what the personal property items in an estate are worth. With proper appraisal documentation, a lawyer’s advice, and additional help from a CPA, you can avoid overpaying on estate taxes and ensure the heirs see a fair distribution.
Fruitcocktail Collectables, an ISA-accredited appraisal company, can help you understand the value of many types of personal property. We specialize in unique items such as art, antiques, jewelry, collections, and other items. While we can’t help you understand the tax implications (please talk to a CPA about that), we can do personal property appraisals and write reports as required by the IRS.
If you need property appraised in the Seattle area, Fruitcocktail’s experienced appraisers can help. Contact us today for an appraisal. Please note that we cannot provide tax advice; we recommend that you also reach out to a CPA or estate attorney to help resolve your estate tax situation.