Its official, starting in 2012 it will be an even better time to be a beneficiary in Oregon State … so long as the estate being inherited is less than $2 million. For estates beyond the $2 million mark, inheritance will become less, well, beneficial.
Unlike the state’s current tax law, this new bill is not based on a federal tax provision that was repealed six years ago (the federal state death tax credit). This new tax will ultimately reduce estate taxes for those with estates of less than $2 million and remove the “cliff “ effect of the old tax for those with estates just over $1 million. This “cliff” effect refers to an anomaly under current Oregon law where an estate of $1,000,000 pays no tax but an estate of $1,050,000 pays $20,500. The new law retains the $1 million exemption of the old law but gets rid of the “cliff” with a new tax rate schedule that gives estates smaller than about $2,000,000 lower taxes.
However, what might not be obvious to many is that this new law is actually a dark-horse revenue raiser for the state. For all estates beyond $2 million, there will be more taxes to pay with a maximum increase of $35,700.
So, how can you reduce or at least minimize the estate tax that your heirs will have to cough up if that is your goal? PLAN, now. For those who are married, plan to fully utilize the $1,000,000 tax-free threshold outlined above for both spouses. In order to do this, you need to make certain that each spouse has under their individual ownership (or is deemed to own) assets that will be subject to Oregon estate tax at their death. For example:
Paul and Joanne have been married for 50 years and have accumulated an estate valued at $5 million from their Portland-based empire of gourmet food trucks. Except for their home, valued at $1,000,000, all of their assets are titled in Paul’s name. Their wills leave everything to each other. They have no federal estate tax under current federal law. Under the new state estate tax and without additional estate planning, their comingled estate would have $1,000,000 exempted and the remaining $4,000,000 would be taxed at rates up to 11.5%, for an estate tax bill of about $425,000.
On the other hand, if Paul and Joanne did some estate planning by
re-titling assets so that Joanne has at least $1,000,000 in her own name and by re-doing their wills to establish taxable Oregon exemption trusts, then $3,000,000 or so would be taxed at rates up to 11%, with an estate tax bill of about $367,500, a savings of over $57,000.
In addition, I highly recommend that every Oregonian consider taking advantage of the opportunity to make gifts tax free using the $13,000 annual gift exclusion and possibly the recently expanded federal lifetime exemption of $5,000,000 per person. If you can afford to make gifts without compromising your financial security, lifetime gifting can reduce Oregon estate tax because the state has no gift tax and the state’s estate tax applies only to what is owned at death.
Although you can’t avoid death and taxes, a little estate planning can minimize the state’s “bite,” leaving more of your legacy for your intended beneficiaries.