Estate Tax Exemption: The Quick Version

Every person can pass on a certain amount of their estate tax-free when they die. That’s the estate tax exemption. Anything under it? Not taxed. Anything over it? Potentially taxed. Straightforward so far.

Understanding Portability in the Federal Estate and Gift Tax System

At the federal level, assets left to a surviving spouse generally pass tax-free. This means that the property passing to the surviving spouse passes estate tax free (at least until the surviving spouse passes).  Federal estate tax law also includes an important feature called portability.

Portability allows a surviving spouse to use any unused portion of their spouse’s federal estate tax exemption. This helps married couples reduce or even avoid federal estate tax. In 2026, a deceased spouse’s exemption could be as much as $15 million dollars and is preserved for the surviving spouse by timely filing IRS Form 706 with “portability” elected.

WA State (and others with “No-Portability”)

All states allow assets to pass to a surviving spouse without estate tax at the first death. The transferred assets become part of the surviving spouse’s taxable estate.

In states with an estate tax but no portability, the first spouse’s unused exemption does not automatically transfer to the surviving spouse. Without planning ahead, the couple can lose the first spouse’s exemption and end up paying more estate tax later. If no planning is done, the surviving spouse’s estate may face estate tax when they die if the estate exceeds the exemption.

Washington is one of these states (see full list below). That means:

  • Each spouse has their own Washington estate tax exemption.
  • If the first spouse dies and you haven’t planned to use that exemption, it disappears.
  • The survivor does not automatically inherit it.

And yes, that’s as costly as it sounds. Washington sets its own exclusion amounts and tax rates. For deaths after January 1, 2026, the exemption is $3,076,000 with tax rates from 10%–35% for estates over that level. For deaths after June 30, 2026, the exemption amount is $3,000,000 with tax rates from 10%-20% for estates over that level.

A Bypass Trust Solves the No Portability Problem

A bypass trust (also known as a credit shelter or family trust) is a simple planning tool that prevents the state from taking more than it should. And yes, the Legata Revocable Living Trust includes this automatically.

Here’s what happens without a bypass Trust:

  • No state estate tax is due when the first spouse dies (spousal transfers are deductible).
  • Everything passes to the surviving spouse, who now owns 100% of the estate.
  • When the survivor dies, the entire estate gets tested against only their Washington exclusion.
  • The first spouse’s unused exclusion is gone for good.

How a Bypass (Credit-Shelter) Trust Works

When you and your spouse create a Joint Revocable Living Trust with Legata, the trust is designed to split into two parts when one spouse passes away:

1. The Survivor’s Trust

  • Holds the surviving spouse’s half of the assets
  • The surviving spouse is in full control
  • Can still be changed at any time

2. The Family Trust (Bypass Trust)

  • Holds some or all of the deceased spouse’s share of the assets
  • Assets held by the trust cannot be changed (it’s irrevocable)
  • Is designed to reduce or eliminate Washington estate tax

Why this setup helps your family

1. It avoids unnecessary Washington estate tax

The assets placed in the Family Trust do not count as part of the surviving spouse’s estate.
This means you get to “use” the first spouse’s estate tax exemption instead of losing it.

2. It protects future growth from taxes

If the assets in the Family Trust grow in value over time, that extra growth also stays outside the survivor’s estate, helping avoid even more tax in the future.

3. The surviving spouse still gets to use the money

Even though these assets aren’t part of the survivor’s taxable estate, the surviving spouse can still:

  • receive income, and
  • use the money if needed.

They keep the benefit, but not the estate tax burden.

Estate Tax States with No State-Level Portability

Only Hawaii and Maryland allow portability at the state level. Everyone else? No dice. States with an estate tax and no state-level portability:

  • Connecticut
  • Illinois
  • Maine
  • Massachusetts
  • Minnesota
  • New York
  • Oregon
  • Rhode Island
  • Vermont
  • Washington
  • District of Columbia

In these jurisdictions, if you’re married and don’t use a bypass trust, one spouse’s exemption is simply lost when they die. You cannot set a bypass trust after the first spouse dies. The trust must already be in place.

Bottom Line

If you live in a state, like Washington, without portability, a bypass (credit-shelter) Trust is one of the most powerful tools to preserve your full estate tax exemptions. A properly drafted joint revocable living trust that triggers a bypass trust at the first death ensures:

  • You don’t lose the first spouse’s exclusion
  • You reduce (and maybe eliminate) Washington estate tax at the second death
  • And you keep more of your wealth with your family, where it belongs

Legata can help you create a revocable living trust that enables the appropriate bypass trust to protect the estate tax exemption when the first spouse passes.