Clients often ask me how their estate plan may be affected by estate taxes. Currently, no Federal Estate Tax is imposed on estates under $11,580,000 (per person), affecting approximately 2,000 people (or 0.0006% of the population) in the U.S. Under the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, this exemption amount remains in place, with annual adjustments for inflation, until 2025, at which time it is slated to expire and return to the $5 million exemption amount in place prior passage of the TCJA, assuming no new laws are put in place first. While I have no crystal ball, based on what has happened before, we will see a reduction of the exemption amount, but not all the way back down to $5 million.
Oregon (one of 12 states, plus the District of Columbia, with an estate tax separate from the Federal Estate Tax) imposes an estate tax on estates over $1 million. There is no adjustment to the exemption amount, and nothing to suggest that the laws will change any time soon.
Oregon imposes this tax on all estates over $1,000,000, regardless of the decedent’s state of residency. For an Oregon resident, this includes all property except real property located outside Oregon and any personal property not taxed by another state or country. Deductions (i.e. funeral expenses, the decedent’s debts, mortgages) will lower the taxable estate. As an example, take an estate of $1,450,000 ($800,000 in real property located in Oregon, and $650,000 in personal property), with $20,000 in deductions. The gross estate is $1,450,000 and the taxable estate is $1,430,000 ($1,450,000 – $20,000 = $1,430,000), resulting in an Oregon Estate Tax of $43,000.
For a non-Oregon resident, only real and tangible property located in Oregon is included in the gross estate and the estate tax is prorated. Using the same estate as above, only the $800,000 real property located in Oregon is subject to the tax, and the estate tax is computed as follows: [$800,000/$1,450,000 = 0.551724] x $43,000 = $23,724, resulting in an Oregon Estate Tax of $23,724.
Residency is based on a person’s “domicile,” defined as “the place which an individual intends to be their permanent home and to which such individual intends to return whenever absent.” As this is not a particularly clear definition, we look at where one is registered to vote and what state issued one’s driver’s licenses as good indicators of one’s state of residency.
For married couples and registered domestic partners, revocable trusts can often offer estate tax planning provisions to shelter up to $2,000,000 at the second spouse’s death, (estate taxes are rarely due at the first spouse’s death). Other planning vehicles are available, but they are complex and should not be entered into without great thought and discussion with attorneys, accountants, and financial advisors.
NOTE: For current tax or legal advice, please consult with an accountant or attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.