Clients often ask me how their estate plan may be affected by estate taxes. Currently, no Federal Estate Tax is imposed on estates under $11.4 million (per person), affecting approximately 2,000 people (or 0.0006% of the population) in the U.S. Under the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, this exemption amount remains in place, with annual adjustments for inflation, until 2025, at which time it is slated to expire and return to the $5 million exemption amount in place prior passage of the TCJA, assuming no new laws are put in place first. While I have no crystal ball, based on what has happened before, we will see a reduction of the exemption amount, but not all the way back down to $5 million.
Oregon (one of 12 states, plus the District of Columbia, with an estate tax separate from the Federal Estate Tax) imposes an estate tax on estates over $1 million. There is no adjustment to the exemption amount, and nothing to suggest that the laws will change any time soon.
Oregon imposes this tax on all estates, regardless of the decedent’s state of residency. If someone dies owning property in Oregon, they will be subject to Oregon’s estate tax laws, although Oregon calculates the estate tax differently for residents and nonresidents.
To explain this, assume the decedent’s total estate is valued at $1,400,000; $280,000 (20%) of the estate is real property situated in Oregon, with the remaining $1,120,000 in another state. If the decedent was a resident of Oregon at the time of their death, $400,000 would be subject to Oregon estate taxes. The starting tax rate is 10%, resulting in a $40,000 Oregon estate Tax.
If the decedent was not a resident of Oregon, the estate tax due is prorated by the percentage of the estate situated in Oregon. Since $280,000 is 20% of the total estate, Oregon levies 20% of what would otherwise be due. The $40,000 tax is reduced to $8,000 (20% of 40,000 = 8,000).
Residency is based on a person’s “domicile” defined as “the place which an individual intends to be their permanent home and to which such individual intends to return whenever absent.” It is not a particularly clear definition and so we look at where one is registered to vote and what state issued one’s driver’s licenses as good indicators.
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 (estate taxes are rarely due at the first spouse’s death). Other planning vehicles are available, but they are complex and should not be 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.
This is an interesting article from a great independent online magazine, DAME. As the article states, it’s important that technology not leave our seniors behind. I hope you enjoy reading as much as I did!
Is Healthtech Failing our Aging Population?
Most people are familiar with Powers of Attorney and how they work at a basic level. However, these documents can have very important consequences to your overall estate plan and should be thoughtfully drafted.
First, some important terminology to understand the different roles in a Power of Attorney. The Principalis the person creating the Power of Attorney, giving someone else authority over their financial decisions. The Agentis the person being given the authority. Now we can discuss how Powers of Attorney work.
Powers of Attorney may be broad or narrow in scope. For instance, the Principal could give the Agent powers to manage all of the Principal’s assets or limited them to only address real property. Powers can also be limited by time, allowing the Agent to manage the Principal’s assets while the Principal is away. However the Principal wants to limit the Agent’s powers, is fine; the Principal need only clearly state those limits in the document.
It should be clear, however, that in a general Power of Attorney, the Agent’s powers only exist as long as the Principal has the legal capacity to exercise those powers themselves. If something happens to the Principal and they are not able to manage their own finances (due to a coma, say), the Agent loses their ability to act on the Principal’s behalf.
This does not work so well in the world of estate planning, where we are setting up documents specifically to allow others to help us if we are incapacitated. Luckily, this problem is easily addressed by making the Power of Attorney “durable,” allowing the powers of the Agent to continue even when the Principal lacks capacity. For a Power of Attorney to be “durable,” it must include specific language stating this intent. Almost all of the Powers of Attorney I prepare for my clients are “durable.”
Another choice is whether to make the Power of Attorney effective immediately or “springing.” A Power of Attorney that is effective immediately gives the Agent the powers in the document immediately upon the Principal signing it. Even though the Principal is fully capable of managing their own finances, the Agent has full authority alongside the Principal. Typically, when we are naming an Agent to manage our finances for us, we do not want them to have any power untilwe are incapacitated. To effectuate that, I usually advise a “springing” Power of Attorney – one which only comes into effect upon the Principal’s incapacity. In this situation, it is important to have a good clear definition of incapacity in the document itself in order to avoid court for the determination.
A well-crafted Spring Durable Power of Attorney often works best to satisfy my clients’ desire to have someone named to manage their assets only if they are unable to manage them alone. Working with an experience estate planning attorney will ensure that your documents are drafted in a way most beneficial to your situation.