Document Type


Publication Date

Fall 10-15-2021


On April 25, 2021, the Washington state legislature enacted a new state capital gains tax. Prior to the enactment of the new state capital gains tax, Washington had been one of the few states that did not impose a tax on either income or capital gains. The limitations imposed by the Washington state constitution have forced the legislature to characterize the tax as an excise tax, rather than treat it as an income tax as would the federal government and every other state. Based on the statute’s structure and its presentation as an excise tax, whether intentionally or unintentionally, the legislature appears to have excluded both the trustees and beneficiaries of non-grantor trusts from being subject to the tax.

Part I of this Article summarizes the history of the new capital gains tax and its key provisions. Part II reviews the history and law regarding grantor and non-grantor trusts, analyzes the new law as applied to non-grantor trusts, and concludes that neither the trustee nor the beneficiaries of a non-grantor trust appear to be subject to the tax. Given the apparent discrepancy, whether it is because of legislative oversight or an unavoidable consequence of constitutional limitations, Part III explores tax strategies that planners and clients might consider pursuing in the wake of the new tax.