I wonder if Washington's play is something along the lines of, "hey, what if we get Flagg this summer and we can have Smart + Middleton around to mentor him but also potentially field a somewhat competitive team in 2026".
Like others have said, buying them out doesn't really benefit them right now. And hey, if a team gets desperate this offseason maybe they'll be willing to offer more to acquire them via trade (like Rockets and Ime wanting Smart).
If anything maybe it's a bit of a surprise Smart/Middleton didn't demand a buyout but maybe both guys are fine with their situation, rehabbing their reputations a bit.