The 2011 Oregon legislature has now adjourned, and while the dust is still settling on all the changes made to state law and potential impacts for businesses and individuals, at least two changes merit mention.
The Oregon legislature revised Oregon's laws on taxes on estates, including by renaming the tax an "estate tax" instead of an "inheritance tax." The new law reworks the tax rates for estates. The legislature kept $1 million as the threshold over which estates will incur state tax, but changed the rates that apply above that amount. The new state marginal rates, which will apply to the estates of those individuals who die on or after January 1, 2012, are set forth in the table below.
| Estate Value | Tax at Low End of Range | Rate | |
|---|---|---|---|
| 1 | 2 | 3 | 4 |
| $1,000,000 | $1,500,000 | $0 | 10.0% |
| $1,500,000 | $2,500,000 | $50,000 | 10.25% |
| $2,500,000 | $3,500,000 | $152,500 | 10.5% |
| $3,500,000 | $4,500,000 | $257,500 | 11.0% |
| $4,500,000 | $5,500,000 | $367,500 | 11.5% |
| $5,500,000 | $6,500,000 | $482,500 | 12.0% |
| $6,500,000 | $7,500,000 | $602,500 | 13.0% |
| $7,500,000 | $8,500,000 | $732,500 | 14.0% |
| $8,500,000 | $9,500,000 | $872,500 | 15.0% |
| $9,500,000 | $1,022,500 | 16.0% | |
The bottom line for most estates is that the new rate structure will not result in a significant change in total taxes. Most estates worth less than $2 million will pay a little less and those over will pay a little more.
The legislature also adopted a uniform law allowing a real property owner to automatically transfer property at death to a beneficiary named in the deed. The so-called transfer on death deed, or “TODD,” will work similarly to a pay on death designation option currently available for bank accounts and securities in Oregon. The purpose of the TODD is to allow an owner to transfer real property directly to a beneficiary outside of probate and without having to set up a trust.
Current law already allows real property to pass to another individual or entity outside of probate or a trust, through, for example, a form of joint ownership with right of survivorship or a transfer with reservation of a life estate. In those situations, however, the transfer is immediately effective. The transfer on death deed is in part designed for situations in which, for tax or other reasons, the grantor does not want the beneficiary’s interest in the property to vest until the grantor’s death.
Grantors can revoke a transfer on death designation during their lifetime, and the law also includes creditor protection provisions by which the property can be subject to estate debts if the estate otherwise does not have sufficient assets to pay debts.
While the transfer on death designation may provide an appropriate solution in some situations, individuals should give careful consideration, and seek advice, on all the potential ramifications of transferring real property in this manner. For instance, given the amount of time creditors are allowed to attach the property, beneficiaries may not be able to sell the property immediately after death.