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What is the STATE of your ESTATE?

by Joseph A. Lewis, JD, CPA

How would your estate be affected if you decided to move out of Oregon? Dying as a resident of Oregon, where there is a $1,000,000 estate tax exemption and a top rate of 14%, could have very different consequences than if you were living in Washington where there is a $2,000,000 exemption and a top rate of 20%. What if you moved to any one of the other nineteen states with either an inheritance or an estate tax? Or, what if you moved to Maryland or New Jersey where they have both, or the 31 where they have neither? While young Californians in the Golden State looking at housing or gas prices bemoan the high cost of living; Elderly Californians in their golden years are looking at no estate or inheritance tax celebrate the low cost of dying.

Oregon, like every other state and the federal government, allows for unlimited marital tax wealth transfers, so planning for your spouse to outlive you allows for the transfer of lots of nontaxable wealth, but also, lots of tax planning problems! The federal government allows for a $5.25 million estate tax exclusion, and has no inheritance tax. At Wooten Mischel & Lewis, we frequently encounter estates who have no federal tax liability to the IRS, but do have a tax liability to the Oregon Department of Revenue.

Can’t taxpayers simply choose a tax advantageous state to avoid estate and inheritance taxes? Maybe. The states look to a legal concept called, “domicile”, which determines a taxpayer’s true home. While not an exact science, we do know auditors have considered more than just where the decedent was actually staying at the time of death. Such factors as where the taxpayer votes, owns property, belongs to clubs, church membership, car or boat registration, minor children school enrollment, professional licenses, and location of a burial plot, to name a few, become factors. Selling the family home and other such costly moves may be necessary to enjoy estate tax benefits, which may be as much as the cost of the tax. So, before your kids pull you across the Columbia River to the hipster land of Kurt Cobain and Microsoft, remind them of there may be financial benefits to stop and smell the City of Roses in the land of Herbert Hoover and Nike.

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