In a past post I examined some of the basics of estate planning before taking a look at Washington State’s estate tax. Today, I want to take a look at our neighbor to the south. Oregon is currently tied with Massachusetts for the lowest estate tax exemption amount in the country at $1M. It’s important to note that it’s not just Oregon residents who may owe estate tax in the state; anyone with real property in Oregon is potentially subject to their estate tax.
Here’s a look at Oregon’s estate tax rates:
(Note this is for the amount of the estate in excess of the $1M exemption)
|Taxable Estate||Taxes Paid||Marginal Rate|
|$0 – $500K||$0||10%|
|$500K – $1.5M||$50,000||10.25%|
|$1.5M – $2.5M||$152,500||10.50%|
|$4.5M – $5.5M||$482,500||12%|
|$5.5M – $6.5M||$602,500||13%|
|$6.5M – $7.5M||$732,500||14%|
|$7.5M – $8.5M||$872,500||15%|
Oregon’s Fractional Rules
In considering whether someone is subject to estate taxes, Oregon adds up all the gross assets in your estate regardless of their location. If those global assets are in excess of $1M, then that estate is subject to Oregon’s estate tax. However, only assets within the state are taxed. For Oregon residents, the only property potentially excluded from the tax is real property located in another state. For example, if an Oregon resident with a $1.5M estate consisting of a $500K residence in Idaho, a $500K residence in Oregon, and $500K in other tangible personal property passed away their global estate would be $1.5M. After their $1M exemption they’d be left with a taxable estate of $500K. Because only ⅔ of the estate was located in Oregon, the fractional rules would then reduce that taxable estate by ⅓ to $333K. Thus that estate would still owe taxes despite having an amount equal to the exemption located in Oregon State.
Nonresidents with real assets located in Oregon may also be subject to Oregon’s estate tax. Continuing the example above, if that person was a non Oregon resident only the $500K residence located in Oregon would be subject to Oregon estate tax. The global estate would still be $1.5M and the taxable amount would still be $500K. However, now only ⅓ of the estate is in Oregon and the taxable estate amount is now $167K.
Reducing your Oregon Estate Tax
As in Washington State, credit shelter trusts are one of the most commonly used tools to help reduce Oregon estate taxes. For married couples, amounts up to the $1M exemption can go into the trust when the first spouse passes. That takes up to $1M out of the estate that would otherwise eventually be taxed as there is no portability of the exemption for a spouse.
Oregon has no gift tax so another strategy to reduce the size of a taxable estate is to give large gifts to heirs while still living.
Scott Caufield, CFA, CPA