By Darin Christensen
On June 28, Governor Kitzhaber signed a bill that will replace
Oregon's inheritance tax with an estate tax. The estate tax is similar
to the former inheritance tax, but has several substantial differences
and provides some planning opportunities.
Oregon's existing inheritance tax is based on the state death tax
credit formerly allowed by the federal estate tax as of December 31,
2000. The nature of the state death tax credit results in a very
complicated rate structure. Essentially, the tax rate is 0% on the first
$1,000,000 in value, 41% on the next $68,000 in value, 6.4% on the next
$532,000 in value, and then it gradually increases until the rate is
16% at $10,100,000 in value. A key issue that the bill addresses is that
the highest inheritance tax rate is on the smallest taxable estates.
The estate tax that will replace it uses a simpler rate structure
with rates starting at 10% on assets above $1,000,000 and gradually
increasing to 16% on value in excess of $9,500,000. The effect of these
new rates is to decrease taxes on Oregon estates of less than $2,000,000
(by up to $20,000) and increase taxes on larger Oregon estates by up to
$35,700. Below is a chart that shows the new rates:
Rate on Amounts
Natural Resources Credit
The new estate tax will expand on the natural resources credit that
was available under the inheritance tax. This credit effectively allows
the deduction from an Oregon estate of up to $7,500,000 in value of
certain farm businesses, forestry businesses, or fishing businesses that
make up at least 50% of the adjusted estate value.
Due to the structure of the inheritance tax, completed lifetime gifts
in excess of the annual gift tax exemption only partially reduce Oregon
inheritance tax liability. On the other hand, under the estate tax,
such gifts completely escape the Oregon estate tax.
An Oregon estate or inheritance tax return is required only if the
gross estate of a person exceeds $1,000,000. Pre-death gifts that take
an estate below $1,000,000 will eliminate the need to file an Oregon
inheritance tax or estate tax return.
Converting to Personal Property
In some cases, citizens of foreign countries or people who are
treated as residents of foreign countries can avoid the Oregon estate
tax. The bill added an unusual provision which essentially says that
Oregon residents are not taxed on intangible personal property (like
stocks, money, intellectual property) if any other state or country
imposes a death tax on that property. Oregon residents who 1) also are
citizens of one of the few non-US countries that impose a death tax on
all assets owned by their citizens or 2) are treated as residents of a
foreign country (Oregon uses a different test for residency than the
test most countries use) that has an estate or similar tax should be
able to avoid all Oregon estate tax by making sure all of their tangible
property (real estate, vehicles, furniture, and other tangible assets)
is owned by a limited liability company or other company. You would want
to do this only if doing so does not increase the other tax more than
it decreases Oregon tax.
Nonresidents of Oregon who own real estate or tangible personal
property in Oregon also can avoid Oregon estate tax by transferring that
property to a limited liability company or other company. That would
convert the property to intangible property on which nonresidents are
The new Oregon estate tax applies to people who die on or after
January 1, 2012. People who die before then will be subject to the
To be certain that your estate plans address the changes in the law, contact Darin Christensen at Bullivant Houser Bailey.
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