People are often confused about what assets make up their estate, and how the Oregon estate tax applies to those assets. Below, we delve into these issues to help you better understand whether or not your estate will pay a tax after you die.
What Assets are Included in Your Estate?
A person’s estate consists of everything they own during their lifetime, in addition to any sums paid out at death (such as life insurance policies). Estate assets can be physical assets such as household furnishings, intangible items such as investment accounts, or real property ownership or rights of use. All of these things you own make up your “net estate.” In contrast, the term “gross estate” means the fair market value of your estate after subtracting any debts owed.
Estate Tax v. Inheritance Tax
Estate and inheritance taxes are colloquially lumped together as “death taxes.” Both refer to taxes that are assessed as a result of a person’s death. However, the important difference between the two is who pays the tax. An estate tax is a tax assessed on the decedent’s estate, meaning that the estate pays the tax and the recipient receives their inheritance tax-free. In contrast, in a state with an inheritance tax, the tax is assessed on the individual receiving the inheritance. Oregon has an estate tax, but not an inheritance tax.
Oregon Estate Tax Exemption
Oregon has an estate tax exemption of $1,000,000. This means that if the value of your estate is worth less than or equal to $1,000,000, no estate taxes will be due at your death. If your estate is over $1,000,000, the portion of your estate over $1,000,000 will be taxed (unless another deduction or exemption applies such as unlimited marital or charitable deduction). The Oregon estate tax is graduated. It starts at 10% and goes up to 16%. The chart below summarizes the marginal tax rates for Oregon.
|Taxable Estate Greater or Equal to||Taxable Estate Equal to or Less Than||Tax Due = Amount Below + ((Column 2- Column 1) * Tax Rate)|
|$1,000,000||$1,499,999||$0 + 10%|
|$1,500,000||$2,499,999||$50,000 + 10.25%|
|$2,500,000||$3,499,999||$ 152,500 + 10.5%|
|$3,500,000||$4,499,999||$ 267,500 + 11%|
|$4,500,000||$5,499,999||$367,500 + 11.5%|
|$5,500,000||$6,499,999||$ 482,500 + 12%|
|$6,500,000||$7,499,999||$ 602,500 + 13%|
|$7,500,000||$8,499,999||$ 732,500 + 14%|
|$8,500,000||$9,499,999||$872,500 + 15%|
|$9,500,000||$1,022,500 + 16%|
What Assets “Count” towards the Estate Tax Exemption?
Your entire estate counts towards your $1,00,000 exemption, even assets you own in a different state. One common misconception about the estate tax is that many people believe it only applies to probate assets, or assets passing under a will. This is incorrect. All assets you own at death, including life insurance, real estate, investment accounts, and retirement accounts, regardless of how they will pass to your heirs, all count towards your exemption.
Out of State Assets
Assets you own in all states are referred to as your “global assets.” If some of your assets are outside of Oregon, those assets are still counted towards your global asset total, but you only pay a proportion of the total tax. For example, if the total tax on your global assets is $300,000, but 1/3 of your assets are in another state, you only pay $200,000 in Oregon estate taxes.
Oregon is tied with Massachusetts for the lowest estate tax exemption in the country. This exemption does not change to adjust to inflation, meaning it will remain at the current rate unless the state legislature repeals or revises the statute. Without advanced planning, your estate could be hit with a large tax bill at your death. If you’d like to discuss options to reduce or possibly eliminate your estate tax liability, please contact our office at (503) 206-6401 or click here to book online!