Estate Tax Planning

Oregon Estate Tax Planning: Expert Guidance in Eugene, Roseburg & Salem

Estate taxes have long been a concern for individuals looking to transfer their wealth after death. The federal estate tax is not a tax on dying or a direct inheritance tax but rather a levy on the transfer of assets. The U.S. estate tax system consists of three key components under the Unified Transfer Tax: Estate Tax, Gift Tax, and Generation-Skipping Transfer Tax (GSTT). Proper legal planning can significantly reduce or even eliminate federal estate tax liabilities, making it a critical element of a well-thought-out estate plan.

Federal Estate Tax Updates and Exemptions

On January 2, 2013, the American Taxpayer Relief Act of 2012 (ATRA 2012) introduced important modifications to estate, gift, and generation-skipping transfer tax laws. These changes directly impact estate planning strategies and should be carefully reviewed to ensure compliance and efficiency.

Under the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (TRA 2010), a $5 million estate tax exemption was introduced, later made permanent and indexed for inflation by ATRA 2012. In 2016, the exemption reached $5.45 million. Married couples can potentially double this amount to $10.9 million if they meet specific IRS requirements upon the death of the first spouse.

Gift Tax and Lifetime Exemptions

The federal gift tax is closely tied to the estate tax, meaning any portion of the exemption used during a person’s lifetime will reduce the available estate tax exemption at death. As of 2016, the lifetime exemption for both estate and gift taxes was $5.45 million, with a top tax rate of 40% on taxable transfers.

Additionally, the annual gift tax exclusion allows individuals to transfer a certain amount each year without triggering gift taxes. In 2016, the annual exclusion was $14,000 per recipient. Married couples can combine their exclusions, permitting tax-free gifts of up to $28,000 per recipient. If one spouse contributes the full amount, they must file IRS Form 709 to elect “gift-splitting.”

Understanding the Generation-Skipping Transfer Tax (GSTT)

The Generation-Skipping Transfer Tax applies to transfers made to recipients at least two generations younger than the grantor, such as gifts or inheritances to grandchildren. The GSTT exemption aligns with the estate and gift tax exemption, allowing $5.45 million to pass tax-free in 2016. The highest tax rate for taxable transfers is 40%.

Estate Tax Exemption Portability

A significant benefit introduced by ATRA 2012 is “portability,” which permits a surviving spouse to claim any unused portion of their deceased spouse’s estate tax exemption. This provision eliminates the need for complex trust structures in some cases. However, to take advantage of portability, the surviving spouse must file IRS Form 709 within nine months of the first spouse’s death. Importantly, GSTT exemptions are not portable, and relying solely on portability may not be the best strategy for blended families or high-net-worth individuals.

Given the complexities of estate tax laws, consulting an estate planning attorney can help ensure your assets are structured in the most tax-efficient manner.

Estate Taxes in Oregon

Oregon operates its own estate tax system, which was originally based on a credit for state death taxes allowed under federal law. However, since the federal estate tax credit for state taxes was eliminated, Oregon no longer has a direct connection to federal estate tax calculations. Unlike some states, Oregon does not impose an inheritance tax, so beneficiaries do not owe state taxes when inheriting assets.

Strategic estate planning is essential to minimize tax burdens and ensure a smooth transfer of wealth. If you need assistance developing an estate plan that aligns with federal and Oregon tax laws, our legal team is here to help.