Washington’s new 9.9% millionaires tax applies to individuals—not trusts. But trust income ultimately flows to individuals. Whether you’re a grantor, trustee, or beneficiary, SB 6346 changes how trust structures interact with your Washington tax liability. In other words, the Washington millionaires tax and trusts are now inseparable planning topics—and the distinctions between trust types matter more than ever. This is a companion article to our comprehensive analysis: Washington’s Millionaires Tax: What High Earners, Business Owners & Families Need to Know. That article covers SB 6346’s full provisions, key exemptions and credits, the pass-through entity tax election, and seven planning strategies. This article goes deeper on one critical area: how the Washington millionaires tax affects trusts of every type.
SB 6346 imposes a 9.9% tax on Washington taxable income above $1 million per household. Specifically, the bill defines “taxpayer” as an “individual”—a natural person. Because trusts are not natural persons, they are not directly subject to the tax.
However, trusts don’t exist in a vacuum. Income generated inside a trust eventually reaches an individual—either the grantor, a beneficiary, or both. The path depends on the trust’s structure. When that income reaches you, it becomes part of your federal adjusted gross income. That’s the starting point for calculating Washington taxable income.
Therefore, the question isn’t whether your trust pays the millionaires tax. It’s whether the trust’s income causes you to pay it.
The answer depends entirely on what kind of trust you have.
In a grantor trust, the person who created it—the grantor—retains enough control that the IRS ignores the trust for income tax purposes. Consequently, all trust income, deductions, and credits flow directly to the grantor’s personal tax return (Form 1040).
In practice, this category includes some of the most common trust structures in estate planning:
Revocable living trusts. This is the standard estate planning trust most families use for probate avoidance. During your lifetime, you report all income on your individual return.
Intentionally defective grantor trusts (IDGTs). An IDGT is an irrevocable trust designed to be “defective” for income tax purposes. The grantor pays the tax—effectively making a tax-free gift to the beneficiaries by shouldering their income tax burden.
Grantor retained annuity trusts (GRATs). With a GRAT, the grantor retains an annuity interest for a fixed period while the remainder passes to beneficiaries.
Qualified personal residence trusts (QPRTs). A QPRT holds a personal residence while the grantor retains the right to live there for a specified term.
If you are the grantor of any trust treated as a grantor trust under IRC Sections 671-679, all income generated by that trust counts toward your $1 million threshold. For example, a revocable living trust holding a diversified portfolio that generates $300,000 in annual income adds that full $300,000 to your Washington taxable income. It’s the same as if you held the assets in your own name.
For grantor trusts, SB 6346 changes nothing about how the income is taxed. Instead, it simply creates a new tax on the individual who receives the income. If your combined personal income and grantor trust income pushes you above $1 million, you owe 9.9% on the excess.
A non-grantor trust works differently. Here, the grantor has given up enough control that the IRS treats the trust as a separate taxpayer. As a result, the trust files its own return (Form 1041) and pays federal income tax on undistributed income.
Here’s where it gets interesting under SB 6346.
The bill taxes “individuals.” A non-grantor trust is not an individual. This means:
Undistributed income retained inside a non-grantor trust is not directly subject to the Washington millionaires tax.
This is a meaningful distinction. Under the federal tax code, non-grantor trusts hit the highest marginal tax bracket (37%) at approximately $16,000 in taxable income (adjusted annually for inflation). By comparison, a single filer doesn’t reach 37% until over $625,000. In other words, trusts are compressed taxpayers. Nevertheless, Washington’s millionaires tax doesn’t follow the federal trust taxation model—it taxes only natural persons.
There’s a critical catch, though.
When a non-grantor trust distributes income to a beneficiary, that beneficiary reports it on their personal federal return. The distribution becomes part of the beneficiary’s federal adjusted gross income—the starting point for Washington taxable income. If the distribution, combined with the beneficiary’s other income, pushes them above $1 million, they owe the 9.9% tax on the excess.
Accordingly, this creates a planning tension. Retaining income inside the trust avoids the Washington millionaires tax but triggers compressed federal tax brackets. On the other hand, distributing income avoids those compressed brackets but may trigger the Washington tax for the beneficiary.
The optimal strategy depends on the beneficiary’s total income picture. Specifically, it requires coordination between the trustee, the beneficiary’s tax advisor, and the trust’s tax preparer.
Incomplete gift non-grantor trusts—commonly called ING trusts, NINGs (Nevada), or DINGs (Delaware)—have been a popular tool for residents of high-tax states. The goal: shift income to trust-friendly jurisdictions.
Here’s how they work. The grantor retains enough control to make the transfer an incomplete gift (no gift tax). However, the grantor relinquishes enough control to avoid grantor trust status. The trust then files as its own taxpayer in a state with no income tax—Nevada, Delaware, South Dakota, or Wyoming—and as a result, the income escapes the grantor’s home state.
Washington anticipated this strategy.
The engrossed substitute of SB 6346—the version that passed both chambers—includes explicit anti-avoidance provisions. Specifically, income from an incomplete non-grantor trust is included in a Washington-resident grantor’s computation of Washington base income. This mirrors the approach California and New York have already taken. If you are a Washington resident and the grantor of an ING trust—regardless of where the trust is established—the trust’s income counts toward your Washington taxable income.
Moreover, this isn’t new ground for Washington. The state’s 7% capital gains tax, enacted in 2021 and upheld in Quinn v. State (2023), already included anti-ING provisions. Those rules pull capital gains recognized by ING trusts back to the Washington-resident grantor. Similarly, SB 6346 extends that same logic to all income.
For existing ING trust holders: Your trust no longer provides Washington income tax shelter for income subject to the millionaires tax. The trust may still offer asset protection, estate planning, and other non-tax benefits. However, for Washington millionaires tax purposes, the state income tax advantage is gone.
For those considering an ING trust: This strategy will not work for Washington millionaires tax avoidance. Period.
Although ING trusts are blocked, completed gift non-grantor trusts remain a viable planning tool under the Washington millionaires tax—with important caveats.
In a completed gift non-grantor trust, you make a completed transfer (a taxable gift for federal purposes) and give up all grantor trust powers. The trust becomes a separate taxpayer. You are not a beneficiary. The anti-ING rules don’t apply because the gift is complete and you’ve fully divested control.
Here’s how this structure interacts with SB 6346:
Income retained in the trust: Not subject to the Washington millionaires tax (the trust is not an individual).
Income distributed to beneficiaries: Included in the beneficiary’s federal AGI. If the beneficiary is a Washington resident and their total income exceeds $1 million, the distribution is subject to the 9.9% tax.
Income distributed to non-Washington beneficiaries: Only subject to the tax if the income comes from Washington sources.
For example, consider a Washington-resident business owner who would otherwise recognize $3 million in income from a business sale. In some circumstances, that owner could transfer the business interest to a completed gift irrevocable trust before the sale. If the trust retains the sale proceeds—and the trust itself is not an individual—the income may consequently avoid the Washington tax entirely.
This strategy involves a completed gift. That means you use federal gift tax exemption, you lose control of the asset, and you cannot be a beneficiary. The step transaction doctrine and anti-avoidance provisions may also apply if the transfer and sale are too closely timed. Critically, the Washington Department of Revenue has not yet issued guidance on how SB 6346 applies to trusts. The analysis above reflects how the statute reads as passed—not any confirmed interpretation by the taxing authority. This is sophisticated planning that requires coordination between your estate planning attorney, CPA, and wealth advisor. Do not attempt this without professional guidance.
Spousal Lifetime Access Trusts—SLATs—are among the most widely used estate planning tools for married couples. In a SLAT, one spouse creates an irrevocable trust for the benefit of the other spouse (and typically children or future generations), making a completed gift using federal lifetime exemption. The beneficiary spouse can receive distributions under a HEMS standard—health, education, maintenance, and support—giving the couple indirect access to the transferred assets while removing them from the grantor’s taxable estate. The HEMS limitation keeps the trust assets out of both spouses’ estates: it prevents the beneficiary spouse from holding a general power of appointment and ensures the grantor has not retained enjoyment of the transferred assets.
Washington’s tax landscape—the 7% capital gains tax (now stepped to 9.9% above approximately $1 million in gains) plus the new SB 6346 millionaires tax—introduces a planning dimension that most SLAT discussions overlook. Both taxes apply only to individuals, not to properly structured non-grantor irrevocable trusts. This distinction determines which SLAT structure best serves a Washington couple—and whether life insurance should be part of the design.
Most SLATs nationwide are structured as intentionally defective grantor trusts (IDGTs). Under IRC §677(a), naming the grantor’s spouse as a beneficiary typically triggers grantor trust status automatically. All trust income, capital gains, and investment returns flow directly to the grantor spouse’s individual return. Nationally, planners consider this an advantage: the IRS does not treat the grantor’s tax payments as additional gifts, so trust assets compound faster—the so-called “tax burn” benefit.
In Washington, that benefit becomes a cost on taxable trust income. Because the grantor is a Washington individual, every dollar of ordinary trust income and realized capital gains passes through to someone subject to both the capital gains tax and the millionaires tax. Married couples filing jointly share a single $1 million household threshold under SB 6346, so the grantor SLAT’s income adds directly to the couple’s combined Washington taxable income.
For example, consider a couple where the non-grantor spouse earns $800,000 and a grantor SLAT generates $500,000 in investment income. The grantor reports the $500,000 on the couple’s joint return, pushing household income to $1.3 million and triggering $29,700 in Washington millionaires tax (9.9% × $300,000 above the threshold). If the SLAT sells appreciated assets, the capital gains tax applies as well.
However, this exposure applies to taxable trust income. As discussed below, life insurance inside a grantor SLAT can substantially reduce or eliminate that exposure—making the grantor SLAT a viable Washington structure when properly designed.
An alternative is the Spousal Lifetime Access Non-Grantor Trust—commonly called a SLANT. A SLANT provides the same spousal access, estate tax removal, and creditor protection as a traditional SLAT, but is intentionally drafted to avoid every grantor trust trigger under IRC §§671–679. Because the trust is treated as its own taxpayer for federal income tax purposes—and because a trust is not an “individual” under SB 6346—income and gains retained inside the trust fall entirely outside the reach of Washington’s capital gains tax and millionaires tax.
In practice, one spouse creates an irrevocable trust for the other spouse and descendants, making a completed gift using federal lifetime exemption ($15 million per person in 2026). You establish the trust in a state with no income tax—South Dakota, Nevada, Wyoming, or Delaware—with an independent out-of-state trustee. Because Washington is a community property state, assets typically must be transmuted to separate property via a postnuptial agreement before funding the trust. This is a step that should be coordinated with your estate planning attorney.
To maintain non-grantor status, the trust must avoid every grantor trigger under IRC §§671–679. The most important for SLANTs is §677(a), which treats a trust as grantor-owned if income “may be applied” for the spouse’s benefit without the consent of an adverse party. This means that before the trustee can make a distribution to the beneficiary spouse, an independent adverse party—typically an adult child, trust protector, or distribution committee member—must approve the transaction. The consent itself is not a taxable event; it is a procedural safeguard that preserves the trust’s non-grantor classification. The distribution that follows, if it carries out trust income, is what creates a taxable event for the beneficiary. With a corporate trustee and proper trust drafting, this approval process is well-established and routine. That said, it does add administrative cost and complexity that a grantor SLAT does not require—a tradeoff explored in detail below.
A completed-gift SLANT established in a no-income-tax state allows the trust to sell appreciated assets, generate investment income, or accumulate gains with zero Washington capital gains tax and zero millionaires tax. The key word is retained. As long as income stays inside the trust, it falls outside Washington’s reach because the trust is not an “individual.”
However, when the trustee distributes income to the beneficiary spouse, that distribution appears on the beneficiary’s Schedule K-1 and flows to the couple’s joint return—where it counts toward the $1 million household threshold. This creates a planning tension: retaining income avoids the Washington taxes but subjects it to compressed federal brackets (the top 37% rate applies at approximately $16,000 of trust taxable income, compared to over $750,000 for MFJ filers; these thresholds adjust annually). For most high-income Washington couples, the Washington tax savings outweigh the additional federal cost—but the optimal approach depends on the household’s specific income levels and asset mix. Life insurance, discussed next, can resolve this tension entirely.
Permanent life insurance—typically indexed universal life (IUL), variable universal life (VUL), or private placement life insurance (PPLI)—allows the beneficiary spouse to access trust value without generating any taxable income, K-1 reporting, or impact on household AGI. This works the same way in both a grantor SLAT and a SLANT.
Here is how it works. One spouse funds the trust, and the trustee purchases a life insurance policy on the grantor spouse’s life. The trust owns the policy and is named as beneficiary. Premiums qualify for the annual gift tax exclusion through Crummey withdrawal powers under IRC §2503(b). Inside the policy, cash value grows tax-deferred under IRC §7702—this growth does not appear on the trust’s Form 1041 and generates no K-1 income to anyone.
When the beneficiary spouse needs liquidity, the trustee borrows against the policy’s cash value from the insurance carrier. Under IRC §7702, a loan against a non-Modified Endowment Contract (non-MEC) life insurance policy is not a taxable event. The loan proceeds are not reportable income on any tax return—they do not appear on a K-1, do not flow to the couple’s Form 1040, and do not count toward the $1 million household AGI threshold.
The loan proceeds arrive in the trust. Any subsequent transfer of those proceeds from the trust to the beneficiary spouse is treated as a trust distribution. For a SLANT, this means the transfer must satisfy the HEMS standard and receive adverse-party consent to preserve non-grantor status. A grantor SLAT requires only the HEMS standard—no adverse-party consent is needed. In both structures, because the funds being transferred originated from a policy loan—not from trust income—the distribution to the beneficiary spouse generally does not carry out distributable net income and is not a taxable event for the beneficiary. This is what makes life insurance inside a SLAT or SLANT particularly powerful for Washington families: the beneficiary spouse receives tax-free liquidity without triggering the millionaires tax threshold.
A trust funded with life insurance can simultaneously achieve four objectives that are otherwise in tension under Washington’s tax regime:
A research paper by Baker Hostetler and Highland Capital Brokerage frames it this way: permanent life insurance is the only asset class that can “simultaneously deliver guaranteed wealth growth, complete income-tax and transfer-tax efficiency, and comprehensive risk mitigation.” Unlike GRATs and installment sales to grantor trusts—which require assets to outperform a hurdle rate—life insurance delivers a guaranteed face value regardless of market performance.
When life insurance is the primary trust asset, both structures avoid Washington’s capital gains tax and millionaires tax during normal operation. Cash value growth is not taxable income at the federal level, so there is nothing to pass through to the grantor in a SLAT and nothing to retain in a SLANT. Policy loans are tax-free in either structure. For many couples, a grantor SLAT with life insurance is the simpler, lower-cost choice—it avoids the administrative requirements of adverse-party consent and the expense of an out-of-state corporate trustee.
However, the grantor SLAT carries policy-dependent risks that the SLANT eliminates:
Policy lapse risk. If the policy is underfunded, underperforms its illustrated assumptions, or carries excess outstanding loans, it can lapse. When a policy lapses with an outstanding loan balance, the policyholder recognizes ordinary income under IRC §72 equal to the gain in the policy—generally, the cash surrender value plus the outstanding loan balance minus total premiums paid. In a grantor SLAT, this ordinary income passes through to the grantor—a Washington individual—and is included in the couple’s household AGI, potentially triggering the millionaires tax. In a SLANT, that same lapse event stays inside the trust, which is not an “individual” and falls outside Washington’s reach.
Modified Endowment Contract (MEC) risk. If premiums exceed the limits under IRC §7702A—whether through overfunding or a reduced death benefit—the policy becomes a MEC. Once classified as a MEC, loans and withdrawals are taxed as ordinary income on a gain-first basis, with a 10% penalty before age 59½. In a grantor SLAT, that taxable income passes through to the grantor and counts toward the $1 million threshold. In a SLANT, MEC income stays inside the trust.
Performance risk. IUL, VUL, and PPLI policies are sensitive to cap rates, participation rates, cost of insurance charges, and market conditions. Sustained underperformance can erode cash value and reduce the funds available through policy loans. This risk exists in both structures, but the tax consequences of a shortfall are more damaging in a grantor SLAT where the grantor bears the Washington tax exposure.
For Washington MFJ couples using life insurance as the primary trust asset, the choice comes down to cost and risk tolerance. A grantor SLAT is simpler and less expensive to administer—no adverse-party consent, no mandatory out-of-state trustee—and works well when the policy is properly funded and monitored. A SLANT costs more to maintain but eliminates the Washington tax consequences of every downside scenario: policy lapse, MEC reclassification, or underperformance. The SLANT is the more prudent long-term structure, particularly for larger policies or when the couple’s other income already approaches the $1 million threshold.
Regardless of which structure you choose, precise execution is essential. When cash value accumulation and policy loan access are the primary objectives—rather than death benefit alone—the most prudent design is a max-funded non-MEC structure: the minimum permissible death benefit under IRC §7702 with premiums funded to the maximum level allowed under the IRC §7702A seven-pay test. This approach maximizes cash value efficiency and builds a substantial reserve that helps protect against rising cost-of-insurance charges and potential lapse in later policy years. Work with your wealth advisor to model premium schedules and stress-test the policy against multiple performance scenarios.
The trustee (not either spouse) must own the policy to avoid estate inclusion under IRC §2042. If an existing policy is transferred into the trust, the three-year lookback rule under IRC §2035 applies—best practice is to have the trustee apply for and purchase the policy directly. Note that IRC §677(a)(3) can independently trigger grantor trust status if trust income may be applied to pay premiums on the grantor’s or spouse’s life without adverse-party consent—a critical drafting consideration for SLANTs. Insurance costs (cost of insurance charges, caps, and administrative fees) reduce net returns compared to direct investment, so the Washington tax savings should be modeled against the insurance drag before committing. This is sophisticated planning that requires coordination between your estate planning attorney, CPA, and wealth advisor.
The following comparison highlights the key differences between these structures for Washington MFJ couples. Nationally, the grantor SLAT remains the default—but Washington’s individual-only tax regime changes the calculus.
| Factor | Grantor SLAT | Non-Grantor SLANT |
|---|---|---|
| WA capital gains tax | Exposed on non-insurance income | Avoided on all retained trust income |
| WA millionaires tax | Exposed on non-insurance income | Avoided on all retained trust income |
| With life insurance (normal operation) | WA taxes avoided—no taxable income to pass through | WA taxes avoided—no taxable income inside trust |
| With life insurance (lapse or MEC) | Ordinary income passes to grantor—WA millionaires tax exposure | Taxable event stays inside trust—no WA tax |
| Federal tax burn | Yes—grantor pays, trust compounds faster | No—trust pays at compressed brackets |
| Spousal access | HEMS standard (no adverse party needed) | HEMS + adverse-party consent required |
| Estate tax removal | Yes | Yes |
| Administrative cost | Lower—flexible trustee selection | Higher—out-of-state corporate trustee, adverse-party coordination |
| Basis at death | Carryover | Carryover |
Many couples create reciprocal or “mirror” SLANTs—each spouse creates a trust for the other. This approach doubles the shelter but carries an additional risk: the reciprocal trust doctrine established in Estate of Grace v. United States (1969). If two trusts are substantially identical in terms, conditions, and economic effect, the IRS can “uncross” them—treating each grantor as the beneficiary of their own trust. As a result, the transferred assets would be pulled back into each grantor’s taxable estate, defeating the entire purpose.
To mitigate this risk, practitioners typically differentiate the trusts through varying distribution standards, different trustee powers, staggered funding dates, or distinct asset types. Despite these safeguards, the reciprocal trust doctrine remains a meaningful litigation risk—especially for larger estates where IRS scrutiny is more likely.
For a deeper look at how spousal access trusts work—including parallel structures that help mitigate reciprocal trust doctrine risk—see our companion article: Understanding Parallel SLATs: A Smart Strategy for Estate Tax Mitigation.
The SLAT and SLANT are not the only tools available, and they work best as part of a coordinated plan. Several complementary strategies may strengthen a Washington couple’s overall position:
GRATs and installment sales to IDGTs. Grantor retained annuity trusts and installment sales to intentionally defective grantor trusts remain effective for transferring appreciation out of your estate—particularly for assets expected to outperform the §7520 hurdle rate or the applicable federal rate. These are grantor trust techniques, so any income generated is subject to Washington taxes, but they are powerful when combined with a SLANT or life-insurance-funded SLAT that shelters the transferred wealth long term.
Standalone ILITs. A pure irrevocable life insurance trust—separate from a SLAT or SLANT—may be appropriate when the primary goal is providing estate liquidity or replacing wealth transferred to other trusts, without requiring spousal access to the trust assets during the insured’s lifetime.
Credit shelter trusts. For couples whose combined estates exceed Washington’s $3 million estate tax threshold, a credit shelter (bypass) trust created at the first spouse’s death can preserve both spouses’ Washington estate tax exemptions. This is a testamentary strategy—triggered by the will or revocable trust at death—and complements the lifetime planning that SLATs and SLANTs address.
Residency planning. For couples with flexibility about where they live, establishing domicile in a state without an income tax eliminates the Washington millionaires tax and capital gains tax entirely. This is the most direct path, but it requires genuine relocation—Washington’s residency rules are fact-intensive, and the Department of Revenue actively scrutinizes claimed changes of domicile. For families in the Portland–Vancouver corridor, the interaction between Washington’s millionaires tax and Oregon’s income tax creates additional planning layers. See our companion analysis: Washington’s Millionaires Tax & the Oregon Border: What Cross-Border Workers, Business Owners & Former Oregonians Need to Know.
The Washington Department of Revenue has not issued guidance on how the millionaires tax applies to SLATs, SLANTs, or distributions from non-grantor trusts to Washington-domiciled beneficiaries. The analysis above reflects how SB 6346 reads as passed, established federal trust taxation principles, and the statute’s explicit limitation to “individuals.” Future DOR rulemaking could alter the treatment. Do not implement any SLAT or SLANT strategy without coordinating with your estate planning attorney, CPA, and wealth advisor.
The two-year window before January 1, 2028 creates opportunities for Washington millionaires tax trust planning. Here are the key considerations:
Every trust in your estate plan should be evaluated for its interaction with the Washington millionaires tax. The key question: who is the taxpayer—you (the grantor), the trust, or the beneficiary? Furthermore, does the trust’s income push that person above $1 million?
For irrevocable grantor trusts (like IDGTs), you may be able to “turn off” grantor trust status by releasing the power that causes grantor trust treatment. Once that happens, the trust becomes a non-grantor trust and its undistributed income is no longer attributed to you.
However, this is a one-way door. Once you give up grantor trust status, you lose the ability to transact with the trust on a tax-free basis. Accordingly, you must evaluate the conversion holistically—weighing the federal income tax consequences, the Washington tax savings, and the estate planning implications together.
In addition, you cannot easily release all grantor trust powers. The mechanics depend on how the attorney drafted the trust and which specific IRC provision (Sections 673-679) creates grantor trust status. As a result, some trusts may require modification or decanting to accomplish this.
For non-grantor trusts, Washington does not currently impose an income tax at the trust level. SB 6346 taxes only individuals, not trusts as entities. However, the state’s increasingly aggressive tax posture means this could change in future legislative sessions.
As a result, establishing or moving trusts to states with trust-friendly tax regimes—Alaska, Nevada, South Dakota, Wyoming, Delaware—adds a layer of protection against future changes. Naming an out-of-state institutional trustee further strengthens the position, particularly for trusts holding intangible assets.
The key point: if the trust has no Washington trustee, no Washington-situs assets, and no Washington-source income, the risk of future Washington taxation is minimal.
If you’re a trustee with discretionary distribution powers, coordinate the timing and amount of distributions with each beneficiary’s total income picture. For example, in years where a beneficiary is below the $1 million threshold, distributions may be tax-efficient. Conversely, in years where they’re above it, retaining income inside the trust may be preferable—even at compressed federal rates.
In practice, this requires a level of annual tax planning between trustee and beneficiaries that many trusts currently don’t undertake.
For grantor trusts, any income recognized before January 1, 2028 avoids the millionaires tax entirely. Therefore, if your trust holds appreciated assets that will eventually be sold, consider accelerating the sale into the pre-2028 window. This could save 9.9% on income above $1 million.
Similarly, the same logic applies to Roth conversions within grantor trust structures. Converting before 2028 avoids the additional Washington tax on the conversion income. For more on income acceleration and six other planning strategies, see our companion analysis: Washington’s Millionaires Tax: What High Earners, Business Owners & Families Need to Know.
The federal estate and gift tax exemption is $15 million per person ($30 million per couple) as of January 1, 2026. Congress permanently extended and increased it under the One Big Beautiful Bill Act signed July 4, 2025. The IRS indexes the exemption for inflation beginning in 2027.
While the federal exemption is now at historically high levels, Washington’s own estate tax threshold remains just $3 million. Irrevocable trust transfers can lock in the federal exemption while removing assets from both the federal and Washington estate tax base.
There’s another factor to consider. SB 6347, the companion estate tax bill advancing through the Washington legislature, would roll back the top Washington estate tax rate from 35% to 20%. Because the millionaires tax now intersects with estate planning, these two disciplines are deeply intertwined. Trust structures that were optimal under the old regime may consequently need restructuring under the new one.
Importantly, the permanence of the $15 million federal exemption reduces the urgency of “use it or lose it” gifting. That said, the introduction of the millionaires tax creates new reasons to accelerate wealth transfers into irrevocable trust structures before 2028.
If you established an ING trust (or NING or DING) specifically to avoid Washington state taxes, that strategy is no longer effective. It doesn’t work for the capital gains tax or the millionaires tax. Therefore, review the trust with your attorney to determine whether the structure still serves your goals—asset protection, estate planning, and other non-tax objectives may still justify maintaining it.
| Trust Type | Who Pays the Tax? | $1M Threshold Applies To | ING Rules Apply? | Key Consideration |
|---|---|---|---|---|
| Revocable Living Trust | Grantor | Grantor’s total income | N/A (grantor trust) | No change—income flows to grantor as before |
| IDGT (Intentionally Defective Grantor Trust) | Grantor | Grantor’s total income | N/A (grantor trust) | Consider converting to non-grantor status |
| GRAT | Grantor (during term) | Grantor’s total income | N/A (grantor trust) | Annuity payments + other income may exceed $1M |
| Non-Grantor Irrevocable Trust (retained income) | Trust (not taxed under SB 6346) | N/A—trust is not an individual | No | Undistributed income avoids WA tax |
| Non-Grantor Irrevocable Trust (distributed income) | Beneficiary | Beneficiary’s total income | No | Coordinate distribution timing |
| ING / NING / DING Trust | Grantor (attributed back) | Grantor’s total income | Yes—blocked | ING strategy no longer works for WA tax |
| Charitable Remainder Trust | Beneficiary (on distributions) | Beneficiary’s total income | No | CRT distributions count toward $1M threshold |
| Grantor SLAT | Grantor | Grantor’s total income | N/A (grantor trust) | WA tax exposure on non-insurance income |
| Grantor SLAT + life insurance | None during normal operation; grantor if policy lapses or becomes MEC | Grantor’s total income (if lapse/MEC) | N/A (grantor trust) | Simpler than SLANT; monitor policy performance |
| SLANT (non-grantor) | Trust (retained) / Beneficiary (distributed) | Beneficiary’s total income if distributed | No (retained income avoids WA tax) | Retain income; use policy loans for access |
| SLANT + life insurance | None (policy loans are not income) | N/A | N/A | Policy loans bypass AGI entirely |
“The millionaires tax doesn’t tax trusts. It taxes the people connected to trusts. Every grantor, trustee, and beneficiary needs to understand which side of the $1 million line their trust income puts them on.”
— Northern Pacific Asset Management
If you’re a beneficiary of a trust—not the person who created it, but the person receiving distributions—SB 6346 affects you in ways you may not have considered. Here are the key dynamics to understand.
Trust distributions are income. When a trustee distributes income to you from a non-grantor trust, that distribution shows up on your Schedule K-1 (Form 1041) and flows to your Form 1040. It becomes part of your federal adjusted gross income. If your salary, investment income, and trust distributions together exceed $1 million, you owe the 9.9% tax on the excess.
You may have no control over the timing. Many trust beneficiaries receive mandatory distributions—unitrust amounts, required minimum distributions from inherited retirement accounts held in trust, or income distributions required by the trust document. In these cases, you can’t ask the trustee to hold back distributions to keep you below $1 million.
Discretionary distributions require communication. If the trustee has discretion over distributions, the best outcome requires the trustee to know your full income picture. This is a conversation many beneficiaries have never had with their trustees. Under SB 6346, it becomes essential.
Multiple trusts compound the problem. If you’re a beneficiary of more than one trust—which is common in multigenerational wealth planning—distributions from all trusts are aggregated on your personal return. To illustrate, $100,000 distributions from three separate trusts add $300,000 to your income.
Northern Pacific Asset Management works with high-earning families, business owners, and trust beneficiaries across Houston, Seattle, Portland, and nationwide to coordinate income tax, estate tax, and trust planning. The two-year window before January 1, 2028 is the time to review your structures.
It’s worth noting how the millionaires tax interacts with Washington’s existing capital gains tax on long-term gains above approximately $280,000 (adjusted annually for inflation)—7% on the first $1 million in taxable gains and 9.9% above $1 million.
However, SB 6346 provides a credit for capital gains taxes already paid. For example, if you owe the 7% capital gains tax on $500,000 in long-term gains, you receive a credit against the millionaires tax for that amount. This prevents double taxation—you don’t pay both 7% and 9.9% on the same gain.
Nevertheless, the credit is nonrefundable and cannot be carried forward. Additionally, the capital gains tax has its own anti-ING provisions that already attribute ING trust capital gains back to the grantor.
For trust planning purposes, the interaction between these two taxes works as follows:
Long-term capital gains in grantor trusts are subject to both taxes (with a credit).
Long-term capital gains retained in non-grantor trusts may avoid both taxes.
ING trust capital gains are attributed to the grantor for both taxes.
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Important Disclosures
This article is published by Northern Pacific Asset Management™ for general informational and educational purposes only. It does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security or financial product. The information presented draws from publicly available sources, including legislative text, regulatory filings, and third-party analysis, and is believed to be accurate as of the date of publication. Northern Pacific makes no warranties or representations regarding the completeness or accuracy of this information.
This article is for informational purposes only and does not constitute tax, legal, or investment advice. SB 6346 has passed both chambers of the Washington legislature but has not yet been signed into law as of the date of publication. The information presented reflects our understanding of the proposed legislation and current tax law as of March 2026. Trust taxation is highly fact-specific and depends on the trust’s terms, structure, situs, and the individual circumstances of all parties involved. Consult your estate planning attorney, CPA, and wealth advisor for guidance specific to your situation.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC, and SEC Registered Investment Advisor. Northern Pacific Asset Management and Osaic Wealth are separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
Northern Pacific Asset Management and Osaic Wealth do not provide tax or legal advice.
© 2026 Northern Pacific Asset Management, LLC. All rights reserved. Live^Exponentially® and Sustainable Advantage® are registered trademarks of Northern Pacific Asset Management, LLC.
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