By Philip Cook

Washington is one of nine states that have no state income tax. But in 2022, a flat 7% long-term capital-gains tax took effect. Then, last May, the state Senate Bill 5813 created a new tier, adding 2.9% on capital gains exceeding $one million. The result: Within the span of three years, the state has gone from zero capital-gains tax to a high of 9.9%.

My state's materially increased tax burden on individuals with significant income and/or wealth may be part of a trend. Massachusetts implemented a 4% "millionaire's tax" on income exceeding $1 million in 2023. Minnesota raised tax on investment income over $1 million in 2024. This year Maryland increased tax on income above $500,000 this year and Hawaii has proposed a net-worth tax.

Washington, which already had the highest estate tax in the country before 5813 was signed into law, has been particularly aggressive in shifting the tax burden to the wealthy. Taxes have almost doubled for some taxpayers, with the top rate growing from 20% to 35% as of July. Given the new tax brackets, estates of $10 million will now be paying $1.3 million in taxes and a $50 million estate will pay $15.2 million, up from $9.25 million previously -- and this is before factoring in federal estate tax.

Granted, Washington state provides a $3 million exemption. But if you're capable of buying a house in the Seattle metro area, even given the recent dip in prices, you may be worth more than the exemption by the time you die. The bottom line is that this new estate tax impacts many more than the state's ultrawealthy. Well-off residents should be aware of all options.

Make a move? I tell my clients who are Washington residents that it's important to weigh all possible implications and I caution against overreacting. However, for some clients, significant changes may be worth considering.

Most of our clients were already familiar with strategies to mitigate Washington's already high estate taxes. Shifting growth assets out of large estates, charitable giving, and employing multigenerational GST-exempt trusts were valid options before the tax hike and are all the more effective now. The new tax increase has also created a strong incentive for people to accelerate gifts to their children because there is no gift tax in Washington.

"Domicile planning" options -- i.e., moving to another state to ease the tax burden -- is another way to go. A 60-year-old high-net-worth client of mine is weighing moving his family to California, a state with no estate tax, just high income taxes. For this taxpayer, the move would result in about $30,000 a year in California income tax in most years, growing to a potential maximum in some years of about $200,000. But even if the client lived to 110, decades of income tax payments wouldn't even come close to the impact of the increased Washington estate tax, particularly since their wealth will continue to grow over time.

Will other states follow? Still, for clients and their families who love living where they are, moving to another state to avoid the current tax situation is a drastic course of action. Perhaps if relocating to be closer to family, for example, was already on the table it might ease the decision-making process. But for most people, it's likely worth considering other planning strategies before making such a huge life change in order to avoid a major tax hit in the far-off future. After all, none of us can predict the tax laws in Washington -- or any other state -- 20 or 30 years from now.

While adding 2.9% to the capital-gains tax isn't likely material to most taxpayers, the increases in Washington state in the last three years creates a possibility that we might see large employers such as Microsoft and Amazon being courted by other states promising tax relief for those highest on the payrolls. And while these increases are extreme by any state's standards, if Washington sees large increases in its tax revenue without a large exodus of wealthy individuals, other states may follow their lead.

It's always a good time to have a conversation with clients about estate strategies, but for wealthy Washington residents, planning right now is particularly beneficial.

Philip Cook is a vice president and client advisor in Whittier Trust's Seattle office, where he focuses on the needs of ultrahigh-net-worth families.

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October 16, 2025 15:59 ET (19:59 GMT)

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