There are both Estate Tax and Income Tax issues that arise on death. Some of your assets may be subject to both income and estate taxes. Minimizing your tax exposure will result in more money being available to take care of your family and friends after you pass.
Income Taxes
The Income Tax issues largely relate to retirement accounts. Just as you would have to report income when you receive retirement benefits, money left in your retirement accounts will need to be claimed as income by your heirs and beneficiaries. If you plan ahead, there are ways to spread that income and thereby reduce the total income tax paid on those benefits/accounts. By reducing the tax burden, you increase the after tax benefits available to take care of your family and friends.
Estate Taxes
In Oregon, the state Estate tax exemption is $1 million. The federal estate tax exemption is $5 million. While $1 million is a lot of money, the state defines your “gross estate” broadly, to include all of your assets, even retirement accounts, pension death benefits, the value of your house and other real estate, life insurance proceeds, and the “value” of any small businesses you may own. In addition, you may be accumulating more assets, so even if you do not have a gross estate of $1 million today, you may reach that level before you pass. If there is a chance your estate will exceed $1 million, an estate plan can help you minimize your estate tax.
Please Note: If you do not live in Oregon, but own real estate in Oregon, you may be subject to Oregon estate taxes even if you do not have more than $1 million in Oregon assets. Oregon looks to your worldwide assets to determine whether Oregon estate taxes should be imposed and then imposes the tax on your Oregon assets. Because of this, if your worldwide assets are more than $1 million and you own any propery in Oregon, you will be subject to Oregon estate taxes. This result can be avoided with proper planning.
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