What Californians Need to Know About the Oregon Estate Tax

Of all the states, Oregon has (rightfully) earned a reputation for having one of the most complex and far reaching estate tax structures. Any individual who owns property in Oregon, (even if they have never been a resident of the state!) may unexpectedly be subject to an estate tax at death. Here, we’ll break down how the Oregon estate tax works, how it affects you, and what strategies you can use to mitigate any effects the tax may have on you. 

The first thing to understand is that the Oregon estate tax operates completely separately from the federal estate tax. Under the federal system, estates under $11.7 Million ($23.4 Million for married couples) owe no tax, and do not need to file an estate tax return. This amount increases every year to keep up with inflation. The exemption for Oregon, however, is a much lower $1 Million, and is not indexed to grow with inflation. This means that if an estate has any Oregon property in it and is valued at over $1 Million, it is required to file an Oregon estate tax return. This is true even if the value of the property in Oregon is less than $1 Million. For example, consider Robert, whose estate consists of two assets: 1) $2.5 Million home in California and 2) a $5,000 painting on display in Oregon. Upon his death, his estate is worth $2,505,000, and Robert’s estate administrator must file an Oregon estate tax.

How much that tax would be comes down to the following formula:
 

(Estate tax on total worldwide assets) x (Calculated Fraction) = Tax Owed
 

Here’s how it works. The entire estate is taxed, including all worldwide assets, according to the tax rates in Oregon law. This takes into consideration the $1 Million exemption, marital and charitable deductions, etc. That total is multiplied by a fraction calculated by doing the following: 

Notice that non-residents may exclude intangible property from the numerator of their fraction, decreasing the total amount paid in the end. The Oregon estate tax has a broad definition of intangible property, including stocks, bonds, trademarks, copyrights, partnership interests, limited liability interests, and more.

For Robert, with his house and painting, the above calculation would look like:

Fraction = $5,000 (Painting) / $2,505,000 (All assets) = .001996
 

So overall, the Oregon estate tax owed would be:
 

Actual Tax Owed = $153,025 (tax on all assets) x .001996 (fraction) = $305
 

The opportunity for smart planning comes in knowing that non-residents may exclude intangible assets. For the above example, assume that Robert does not own the painting directly, but instead has 100% ownership of an LLC whose sole asset is the painting. The calculations then become: 
 

Fraction = 0 (No tangible or real property owned in Oregon) / 2,505,000 (real property in CA, and intangible Oregon Property) = 0.0

Actual Tax Owed = $153,025 (tax on all assets) 0.0 (fraction) = $0
 

Naturally, most estates are far more complex that Robert’s, and we here at Wood Law are ready to step in and help unravel that complexity. We are prepared to help you make smart planning decisions, and can help implement strategies that will help you retain your wealth, and minimize the negative effects of estate taxes, on both the federal and state levels. Come see us, and as always, feel free to reach out with any questions.