[WSBAPT] Nonresident estate taxes

[Joshua McKarcher]

ALL READERS BEWARE: In re Anna’s note in yellow below: I am “fixing” this for more than one client right now whose prior lawyers had absolutely no idea what they were “doing” by doing this exact thing. In one case the tax burden would be stunning to the Washinton resident holding LLC interests for an entity with not a lick of Washington presence, property, history, or even a tiptoe across the border into our fine state. Wild and crazy!

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Anna Cashman
Sent: Wednesday, October 22, 2025 8:22 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Nonresident estate taxes

Hello Mimi.  You are correct that the threshold for filing an estate tax return in Washington is the decedent’s gross estate, not just the value of property in Washington.  This is because the tax is prorated based on the amount of assets in Washington.  Many people are surprised to learn that a $500,000 property in Washington will result in estate tax due if the gross estate is $5 million ($4.5 million outside of Washington).  The WSBA deskbook on estate tax has a few examples of this as well 😉

The DOR no longer applies the business purpose test for LLCs.  This can work in your favor if you have a non-domiciliary with Washington real estate.  If you put the real estate into an LLC, then you are converting real property into personal property, which would be taxed in the decedent’s home state.

But note that this also works in the inverse if you are working with Washington residents with out of state property.  If a Washington resident owns a cabin in Montana that they rent out, if you put the cabin in an LLC, then the LLC is personal property that can be taxed by Washington.

Anna

Anna M. Cashman
[cid:image001.jpg at 01DC432E.453FD4C0]
Tel (206) 382-4414 ext. 234 / Fax (206) 382-4412 / acashman at khbblaw.com<mailto:acashman at khbblaw.com>
705 Second Avenue / Suite 800 / Seattle, WA 98104 / www.khbblaw.com<http://www.khbblaw.com/>

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Mimi Wagner
Sent: Tuesday, October 21, 2025 4:41 PM
To: wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Nonresident estate taxes

Hello, Listmates,

A few weeks ago someone raised a question about WAC 458-57-125 and I did not notice any answer.  If the nonresident decedent’s only asset in WA was a house in her own name valued at well less than the WA exclusion, I am surprised to see that the entire non-WA estate of the nonresident decedent is pulled into WA for calculations, with the result that WA estate tax would nonetheless be due (in the hypothetical below).  Can anyone comment on this?

“(b) Example – Nonresident decedent. A widow dies during 2013 leaving a gross estate of $6 million. The decedent was a Colorado resident at death and all of the decedent's property is located in that state, except for a vacation home located in Washington valued at $650,000. The estate had $100,000 in expenses deductible for federal estate tax purposes. The applicable exclusion amount for 2013 is $2,000,000.
Under the facts of this example, the estate owes Washington estate tax on a Washington taxable estate of $3,900,000, computed as shown below:
Gross estate:
$6,000,000
Less allowable deductions:
($100,000)
Less applicable exclusion amount:
($2,000,000)
Washington taxable estate:
$3,900,000
The preapportionment Washington estate tax for this estate, using the table provided in WAC 458-57-115<http://app.leg.wa.gov/WAC/default.aspx?cite=458-57-115> (3)(a), equals $534,000, computed as follows: $390,000 + ($900,000 x 16%) = $534,000.
Because the decedent owned property located outside Washington, the tax due to Washington is calculated by multiplying the amount of preapportionment tax computed above by the fraction described in this subsection (2). Also, because the decedent was not a Washington resident at death, the numerator of the fraction does not include the value of decedent's intangible personal property. The denominator of the fraction is the value of the decedent's gross estate. Using the facts in this example, the tax owed to Washington equals $57,850, computed as follows: ($650,000/$6,000,000) x $534,000 = $57,850.”

A related query is:

Nonresidents want to put WA real estate in LLCs to convert them to intangible, non-WA situs property under the newer DOR guidance.  Understandable.  But the guidance is scarce.
Is anyone aware of any concerns about making the nonresident’s Trust a Member of the LLC (instead of a natural person)?  I don’t know why this would be a problem, but there isn’t much guidance and the stakes are high.

Thank you,

Mimi M. Wagner
Wagner Law Offices P.C.
385 Court Street, Suite 4
P.O. Box 3019
Friday Harbor, WA  98250
mimi at sanjuanlaw.com<mailto:mimi at sanjuanlaw.com>
Phone (360) 378-6234
Fax (360) 378-6244
www.sanjuanlaw.com<http://www.sanjuanlaw.com/>
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