Cheri L. Elson and Allen G. Drescher, Retired
21 S. 2nd St. ● Ashland ● Oregon ● 97520

Why an Estate Plan?

We’ve spent the last year and a half or so discussing various aspects of estate planning and how to put together a comprehensive plan.  I thought it might be a good time to review just why an estate plan is so important. Estate planning is something most Americans avoid and often never get around to.  The excuses range from “Estate planning is too confusing” to “I don’t have anything to leave behind” to “I will get around to it next year.”  Having an estate plan, however, offers one’s family members peace of mind during a difficult period. The four main documents in an estate plan are: Will, Trust, Durable Power of Attorney for Finances, and Advance Directive for Health Care. A Will is a legal instrument permitting a person to make decisions on how their estate will be distributed after death.  With no Will, the person dies intestate and State laws dictate distribution of the estate.  Wills do not avoid probate; however, they will ensure your assets are distributed to the people and in the manner you desire. One of the simplest ways to avoid probate is through a Trust.  In a conventional Trust, the three main “players” (Settlor, Beneficiary, and Trustee) are initially the same person. The Settlor never changes and is the only person who can change the Trust document. If the Settlor becomes unable to handle their own financial affairs the successor Trustee (chosen by the Settlor) takes over management of the Trust for the benefit of the Settlor, with the remainder beneficiaries receiving an interest in the Trust only after the Settlor’s death (the same way that a person’s estate passes to their beneficiaries under a Will). The Durable Power of Attorney for Finances (DPA) names the person responsible for managing your personal finances in the event you are unable to manage them yourself.  Even in a Trust-centered plan, the DPA plays an important role, governing the assets held outside the Trust. An Advance Directive for Health Care combines a power of attorney for health care and a living will into one document.  It allows you to name an agent to speak with the doctors and make health care decisions for you if you are unable to make them on your own. Estate plans are designed to grow and develop with us and should be reviewed periodically.  I recommend reviewing plans annually – changes may not be needed each year but reviewing the plan will help keep it fresh in your mind, as well as help ensure any necessary changes are caught and addressed quickly. When properly drafted, an estate plan is a powerful tool not only in the event of person’s death, but also during one’s life.  Engaging the services of a professional who specializes in this area of law to assist you in drawing up your estate plan will help ensure your plan works effectively under any circumstances.

Estate Taxes – What’s the Scoop?

Clients often ask me about estate taxes and how their estate may be affected by them.  Laws surrounding estate taxes seem to be an ever-changing target and the Federal laws are quite different from those in Oregon. (California has no estate tax at the state level and so residents of California only need to concern themselves with the Federal rules.)

Federal Estate Tax Laws

Contentious political debate has always surrounded Federal Estate Tax (FET) laws, since first set into motion in 1916.  It is interesting to note that FET has never produced more than 2% of federal revenues in any given year since World War II.  The modern FET was repealed in 2001, with a gradual increase in the exemption amount until it was fully phased out in 2010.  However, that legislation “sunsetted” and FET returned in 2011.  In 2013, the exemption amount was $5 million per person at a rate of 40%, meaning that the first $5 million of a decedent’s estate would pass FET-free, with any amount over that being subjected to a 40% tax rate. This law had built into it an annual increase in the exemption amount. In December 2017, legislation was signed increasing the exemption amount to $11 million per person, again with annual increases.  In 2019, the exemption amount is $11.4 million per person, resulting in only approximately 2,000 people (or 0.0006% of the population) in the U.S. currently liable for FET.  This law also “sunsets” and in 2025, FET exemption amount is set to return to the $5 million level, absent any further legislation.

Federal laws surrounding Gift taxes are connected with FET, creating what is called a “unified exclusion.” This means that as a person makes large lifetime gifts, they are eating away at the $11.4 FET exemption amount. As an example, if a person gifts $5 million in assets over their lifetime, their FET exemption is reduced to $6.4 million at their death.  

Oregon Estate Tax Laws

Oregon is one of 12 states (plus the District of Columbia) that levies an estate tax. The exemption amount of Oregon’s Estate Tax (OET) is $1 million per person with a graduated rate starting at 10% and capping at 16%.  There is no adjustment to the exemption amount, and nothing to suggest that the laws will change any time soon.

Unlike the Federal Laws, there is no unified exclusion connecting Gift and Estate Taxes, and gifting does not affect the OET exemption amount.  If someone knows they are about to die, they could gift away their assets before dying to avoid OET.  

Estate Planning and Estate Taxes

For couples, revocable trusts can often offer sufficient estate tax planning to avoid most, if not all, estate tax otherwise due at the second spouse’s death (it is usually possible to avoid at the first spouse’s death).  Other planning vehicles are available, but they are complex and should not to entered into without great thought and discussion with attorneys, accountants, and financial advisors.

NOTE: For current tax or legal advice, please consult with an accountant or attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

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