Our Oregon clients ask us questions regarding different types of tax assessments. But one they often leave out is the Oregon estate tax. If not properly considered, it can lead to an unexpected tax liability that will reduce the amount of money passed down to your heirs.
Many people have heard of the federal estate tax, but they fail to realize that states can impose an estate tax as well. In this post, we will take a look at the Oregon estate tax and answer some of the critical FAQs.
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Oregon Estate Tax FAQs
What about the federal estate tax?
Not only are you assessed a tax at the state level in Oregon, but you also have a federal estate tax to consider. It is often called the death tax for obvious reasons.
The estate tax has been around for decades, but it is evolved over time and the exemption has changed. Currently, the exemption is $11.7 million for calendar year 2021. But this could be changing in the future.
In theory, the tax is rather simple to calculate. But you’ll still need the assistance of a CPA or another tax professional.
The executor or administrator of the estate will need to aggregate all assets. The valuation of these assets should all be examined based on account statements or appraisals.
Once final valuations are determined, the executor can deduct certain administrative expenses and professional fees. This would include legal fees, accounting fees, and appraisal costs.
The executor is also allowed to deduct against the assets any debts or mortgages of the estate. This includes medical bills, and any personal debts like credit cards.
Lastly, deduct the exemption amount from the net assets. The final calculation is then multiplied by the 40% tax rate to determine the estate tax liability. You’re also able to deduct any estate tax paid to Oregon from your federal estate tax bill.
Strategies to Legally Avoid the Oregon Estate Tax
You may not currently have an estate tax problem. But that can quickly change. You may not think you have an issue, but that doesn’t mean you shouldn’t consider some planning strategies. Your estate attorney or CPA can help you consider the following:
- Grantor Retained Unitrusts (GRUTs)
- 529 Plans
- Direct Medical & Healthcare Payments
- Family Limited Partnerships (FLPs)
- Grantor Retained Income Trusts (GRIT)
- Intentionally Defective Grantor Trust (IDGT)
- Irrevocable Life Insurance Trust (ILIT)
- Qualified Personal Residence Trusts (QPRTs)
- Donor-Advised Funds
- Charitable Remainder Trusts (CRUT)
- Revocable Grantor Trusts
- Dynasty Trusts
- Charitable Gift Annuity
- Grantor Retained Annuity Trusts (GRATs)
- Direct Tuition Payments
- Gifts Below Annual Exemption
- Qualified Terminable Interest Property (QTIP)
Who needs estate planning?
While everybody should consider some form of estate planning, it is imperative for certain people. If you fall into one of the following categories, you may need to get started immediately:
- Retirement plan assets over $1 million
- Life insurance policies over $1 million
- Significant real estate (rental property) holdings
- Large stock, bond, or mutual funding holdings
- Professional occupation and high-earner
- Stand to inherit large sums of money
- Own a business or are an entrepreneur
Oregon Tax Structure
Oregon is a moderately-tax friendly state. The state does not tax Social Security, but it does fully tax retirement accounts. Pensions are just partially taxed.
The income tax rate in Oregon is progressive, with a top rate of 9%. The good news is that the state does not have a state or local sales tax. But the property rates are on the high side. Property tax rates average 1% to 1.2%.