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
Inheritance taxes are not applicable to heirs who are younger than 21. This is a one-time fee and is paid when your loved ones pass away.
In addition to the federal estate tax, the state of Oregon has a separate estate-tax. The state’s death tax credit will offset the amount of the estate that is subject to the state’s estate tax.
The federal estate tax credits are the most important factor in determining your taxable estate. Therefore, it is vital that you have a thorough understanding of the estate tax in Oregon. While the Oregon estate tax is not a large tax, it is important to understand the rules.
The Oregon estate tax is graduated. The rate starts at 10% and goes up to 16%, depending on how much the estate is worth. If you have a $1 million exemption, you are exempt from the state estate taxes, but if you die without a valid will, the state may impose a higher rate.
In Oregon, the estate tax rates are 10% and go up to 16%. This is the rate that is applied to the entire estate. The state’s $1 million exemption does not apply to gifts made to qualified organizations.
The estate tax in Oregon can be a big surprise for people moving to the state from other states. California and Texas both have no state death tax, while Washington State taxes estates valued at over $2 million per individual.
In Oregon, however, the taxable value of an estate is $1 million. Then, the estate must pay taxes on the entire amount. When this happens, the tax is imposed on any estate with more than $1 million in value.
The estate tax in Oregon is a complex process. You must consider your assets before filing your estate taxes in Oregon. The tax applies to the total amount of your assets, including your life insurance policy, retirement accounts, and investment accounts.
In some cases, the estate tax is eliminated if the total value of the assets exceeds the threshold of the state’s estate tax. Otherwise, you must pay a higher rate of tax in Oregon.
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
| Reduce estate tax | No impact on estate tax |
|---|---|
| Life Insurance Trust | Revocable Trust |
| Intentionally Defective Grantor Trust | Retirement Trust |
| Grantor Retained Unitrust | Grantor Trust |
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%.
