Christopher S. Mulvaney,

Attorney and Counselor-at-Law

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THIS WEBSITE INCLUDES GENERAL INFORMATION & THE OPINIONS OF CHRISTOPHER S. MULVANEY. IT IS INTENDED TO STIMULATE A BASIS FOR QUESTIONS RELATED TO YOUR PARTICULAR FACTUAL CIRCUMSTANCES — BEFORE YOU ACT.  THIS WEBSITE DOES NOT CONSTITUTE LEGAL ADVICE. IF YOU WANT LEGAL ADVICE, PLEASE MAKE A ZOOM APPOINTMENT TO SPEAK WITH ME.

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Gonzaga University School of Law – Spokane, Washington – Class of 2002 – Cum Laude The Latin phrase “Deo patriae, scientiis, artibus” translates to “For God and country through sciences and arts”.  The initials A.M.D.G. on the seal of Gonzaga Law School stand for Ad Majorem Dei Gloriam, which is Latin for “For the Greater Glory of God” the Motto of the Society of Jesus (Jesuits): a Catholic religious order founded by St. Ignatius of Loyola.

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In 2025, a Washington state non-grantor asset protection trust has become a vital strategic tool for high-net-worth individuals, primarily due to recent and significant shifts in the state’s tax landscape. By separating the legal ownership of assets from the individual who created the trust (the grantor), these structures provide a unique combination of defense against creditors and aggressive state-level taxation that standard revocable trusts cannot offer. 

1. Permanent Avoidance of Washington Capital Gains Tax 

The most compelling reason for the rise of non-grantor trusts in 2025 is the Washington State Capital Gains Tax.

• The Individual Exemption: Washington’s capital gains tax (currently 7% on gains above a certain threshold) specifically applies only to individuals.
• Trust as a Separate Entity: A properly structured non-grantor trust is considered a separate legal and taxable entity, not an individual. When such a trust sells appreciated assets—such as tech company stock or business interests—the transaction is legally performed by the trust, which is currently exempt from this state tax.
• Massive Potential Savings: For a family selling $10 million in appreciated stock, moving those assets into a non-grantor trust before the sale could potentially save nearly $900,000 in state taxes. 

2. Shielding Assets from Lawsuits and Creditors

Standard “living” or revocable trusts do not provide asset protection because the grantor retains control and the law views the person and the trust as the same entity. 

• Irrevocable Protection: A non-grantor trust is inherently irrevocable, meaning the grantor gives up legal ownership. Because the grantor no longer owns the property, their personal creditors generally cannot seize those assets to satisfy judgments or lawsuits.
• Professional Safeguards: This is especially critical for individuals in high-risk professions, such as medicine or real estate development, where the threat of litigation is high. 

3. Mitigating the 2025 Tiered Estate Tax

As of May 2025, Washington State Senate Bill 5813 introduced a tiered capital gains tax and increased estate tax rates for high-value estates. 

• Removing Assets from the Taxable Estate: Assets transferred into a non-grantor trust are removed from the grantor’s personal estate.
• Freezing Value: Any future growth of those assets occurs inside the trust, meaning that growth is never subject to Washington’s estate tax, which can reach rates as high as 35% for large estates. 

4. Strategic Income Tax Benefits (SALT and QBI) 

Under the One Big Beautiful Bill Act (OBBBA) effective in 2025, non-grantor trusts offer additional federal tax workarounds: 

• SALT Deduction Multiplication: The OBBBA raised the state and local tax (SALT) deduction cap to $40,000 starting in 2025. Because each non-grantor trust is a separate taxpayer, a family can potentially establish multiple trusts to “stack” these $40,000 deductions, significantly reducing their overall federal tax bill.
• QBI Deduction Optimization: Business owners whose income exceeds the thresholds for the 20% Qualified Business Income (QBI) deduction can use non-grantor trusts to divide business ownership. By spreading income across multiple trusts that remain below the threshold, they can claim the full deduction that would otherwise be phased out at their personal income level. 

5. Protection for Future Generations

Beyond the grantor’s own protection, these trusts safeguard the legacy for heirs. 

• Beneficiary Creditor Protection: If a child inherits assets outright, those assets are vulnerable to the child’s own creditors, lawsuits, or divorces. If the assets stay within the non-grantor trust, they remain shielded while still providing income for the child’s needs.
• Divorce Shield: Assets placed in a trust prior to marriage are generally treated as separate property, making them untouchable by a divorcing spouse in a contentious proceeding. 

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Summary of Considerations: While powerful, these trusts require a complete loss of control; you cannot simply take the assets back once they are moved. They are also complex to manage, often requiring independent trustees and separate tax filings. Given that Washington’s tax laws were significantly updated in mid-2025, it is essential to consult with specialized legal counsel to ensure the trust is compliant with the latest 2025 regulations. 

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Washington State residents can meet with me in Zoom/DocuSign from anywhere in the world, and I can notarize their electronic signatures because I am a remote online notary.  Just email me an image of your photo ID.