Willamette Week is reporting that revenue from the Oregon Estate Tax soared in 2016. This is good news for the state budget, but it also suggests that Oregonians may not be effectively planning their estates to minimize Oregon Estate Tax. Key facts regarding the Oregon Estate Tax include the following:
1. A single person has a $1 million exemption from the Oregon Estate Tax.
2. The tax rate after the $1 million exemption amount is 10 to 16%.
3. To determine a person’s gross taxable estate, Oregon will consider all of a person’s property, including equity in real estate, retirement accounts, investments, business interests, tangible personal property, life insurance benefits, etc. Property outside of Oregon may increase the value of the gross taxable estate.
4. Oregon does not have a gift tax, so a person may give away assets prior to death, which will then not count against the person’s $1 million exemption amount. While this sounds easy in theory, in practice it can be difficult to implement for a variety of reasons.
5. With proper planning, a married couple should both be able to combine their $1 million exemption amounts to pass $2 million without any Oregon Estate Tax owed upon the death of both spouses. This can be accomplished by using a Credit Shelter Trust to preserve the $1 million exemption amount of the first deceased spouse. However, to have this option, the married couple must plan ahead prior to the death of the first spouse. Keep in mind that Oregon does not have the same “portability” feature offered to married couples by the Federal Estate Tax.
6. Unmarried individuals with more than $1 million in assets, and married couples with more than $2 million in assets, have multiple additional options to reduce or avoid Oregon Estate Tax:
a. Give away assets during your lifetime as described above.
b. Leave part of all of your estate to charitable organizations.
c. Set up an Irrevocable Life Insurance Policy to move the value of a whole life insurance policy outside of your taxable estate.
Personally, I think the Oregon Estate Tax serves a valid public policy purpose and should not be repealed. At the same time, it is reasonable for individuals to engage in legal, prudent state planning to avoid paying more tax than is required by law.