Oklahoma is known for a lot of things, but confusion often surrounds the tax code. Specifically, many of our clients ask about the estate tax, inheritance tax, and gift tax.
The purpose of this post is to address these tax issues and give you some guidance. If you’ve got a large estate, make sure you ask questions in order to avoid surprises down the road.
Oklahoma estate tax
If you have a larger estate and live in Oklahoma, I think I have some good news for you. Oklahoma does not have an estate tax.
But don’t forget about the IRS estate tax. This can be assessed even though there is no specific tax in Oklahoma.
Federal estate tax questions
The federal estate tax has been around for decades, but it has drawn some recent headlines. The current tax rate of 40% is possibly increasing to 45% (depending on congressional approval). These rates are always subject to change so take note.
Some think the federal estate tax is very complicated, so we will try to make it easy for you. The first step is to aggregate all assets of the estate. This would include real estate, retirement accounts, homes, stocks, and other assets like cars, boats and planes.
Once the asset values have been determined, you can subtract legal, accounting and other professional fees like appraisals. You also can subtract debts and other obligations.
The result is what we would call your net estate. This number is what is used to apply the 40% rate (after you subtract the exemption amount).
Because the rate is so high, do everything you can to reduce your net estate. There is a reason why many people call the estate tax the death tax.
Gift tax & inheritance tax questions
I’ve got more good news for Oklahoma residents. Oklahoma does not assess a gift tax or an inheritance tax.
Only seven states have an inheritance tax. But Oklahoma residents need to be careful. They could find themselves subject to inheritance tax from another state if they receive money from an estate in that state.
Strategies to Avoid or Reduce the Oklahoma Estate Tax
You may not think you have an estate tax issue. But your situation can change quickly. It is never too early to start considering some planning techniques. Your lawyer or CPA can review the following ideas to see if there is a fit:
- Qualified Personal Residence Trusts (QPRTs)
- Donor-Advised Funds
- Revocable Grantor Trusts
- Direct Tuition Payments
- Family Limited Partnerships (FLPs)
- Grantor Retained Annuity Trusts (GRATs)
- Qualified Terminable Interest Property (QTIP)
- Grantor Retained Income Trusts (GRIT)
- Irrevocable Life Insurance Trust (ILIT)
- Charitable Gift Annuity
- Intentionally Defective Grantor Trust (IDGT)
- Charitable Remainder Trusts (CRUT)
Who should think about estate planning?
While everyone should address even minimal planning strategies, it is more than critical for certain people. If you fall into one of the specific categories below, you may need to jump start your planning:
- Retirement plan assets over $1 million
- Professional occupation and high-earner
- Stand to inherit large sums of money
- Own a business or are an entrepreneur
- Significant real estate holdings
- Large stock or mutual fund holdings
- Life insurance over $1 million
Estate Tax Return Rules, Limits & Requirements
When you have an estate valued in excess of the estate exemption, you must file Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return. A few points to consider:
- If your estate is below the exemption amount you are not required to file an estate tax return (except if you are filing one to elect portability).
- You must file Form 706 within 9 months after the date of the death. If you cannot file by the required deadline, you can request an extension. Complete Form 4768, Application for Extension of Time To File a Return, to apply for an automatic 6-month extension of time to file.
- Regarding portability, an executor may only transfer the “DSUE” amount to a surviving spouse if Form 706 is timely filed.
Overall Oklahoma tax structure
Oklahoma is rather friendly when it comes to taxes. Even though it has real estate tax and state income tax, it does not have gift or inheritance tax.
If you have a large estate, don’t forget about the federal state tax. It can catch up to you quickly.