If you’re a resident of Oregon and leave an estate of more than $1 million, your estate may have to pay Oregon estate tax. The $1 million exemption is the current figure; the law in effect at your death will apply to your estate. In November 2012, Oregon voters rejected a ballot measure that would have repealed the state's estate tax.
The Oregon tax is different from the federal estate tax, which under current law (deaths in 2013) is imposed on estates worth more than $5.25 million. So even if your estate isn’t large enough to owe federal estate tax, it might owe Oregon tax.
It’s not just state residents who may owe Oregon estate tax. Oregon also taxes estates that contain assets that are physically in the state. So you’re a nonresident but own valuable real estate in Oregon or kept other tangible assets (a boat or plane, for example) there, your estate may need to file an Oregon estate tax return.
Terminology note: Until 2012, the Oregon tax was called an inheritance tax. It has always, however, worked like what all other states call an estate tax, because it affects only estates of a certain value. Inheritance taxes, by contrast, are imposed regardless of the size of the estate; all that matters is who inherits. Close relatives pay nothing or low rates, while more distant relatives or non-family members pay a higher rate.
Information about the Oregon estate tax is available from the Oregon Department of Revenue.
When an Estate Tax Return Is Required
If the gross estate of an Oregon resident has a value of more than the exempt amount in the year of death ($1 million for deaths in 2013), the executor must file a state estate tax return. Your gross estate will include everything you own at your death:
- Real estate
- Bank and investment accounts—retirement and non-retirement
- Vehicles and other items of personal property
- Proceeds from any life insurance policies on your life (unless you don’t own the policy)
- Your business interests (sole proprietorship, limited liability company, or closely held corporation)
- Any property you hold in a revocable living trust
Will Your Estate Owe Tax?
Even if an Oregon return must be filed, it doesn’t mean that the estate will owe estate tax. Property left to a surviving spouse or registered domestic partner, no matter what the amount, is exempt from Oregon estate tax. So if you leave all of your assets to your spouse, no tax will be due.
Your executor will also be able to deduct some expenses (attorney’s fees, for example) from the gross estate, which may make the taxable estate smaller than the exempt amount. If that happens, no tax will be owed.
Federal law currently allows spouses to share their individual federal estate tax exemptions. If the first spouse to die doesn’t use up all of his or her federal estate tax exemption, then the second spouse’s estate can use the unused portion of the first spouse’s exemption amount. This is called the “portability” provision. Spouses cannot, however, share their individual estate tax exemptions for Oregon estate tax purposes.
Deadlines for Filing the Tax Return
If a return is required, it’s due nine months after the date of death. The executor can request a six-month extension to file and to pay any tax due. If the tax isn’t paid on time, there’s a penalty, and interest accrues on the unpaid amount.
Your executor will have to hire professional help (an experienced lawyer or CPA) to prepare the Oregon estate tax return—and a federal return as well. That’s right—even if a federal estate tax return doesn’t have to be filed with the IRS, the executor will have to prepare a “dummy” version and file it with the state return. The preparer’s fee will probably be several thousand dollars, payable from estate funds.