The Tax Cuts and Jobs Act, which was passed in December of 2017, brought large scale changes across the board. It significantly changed the landscape for taxes in general and in the realm of estate planning. It moved the estate exemption from $5,490,000 in 2017 to $11,200,000 per individual, meaning for federal estate tax purposes up to $11,200,000 of assets can pass to a non-spouse upon passing, free of Federal Estate Tax.
The same does not hold true for Oregon and Washington, though. In Oregon the exemption is a mere $1,000,000 and Washington for 2018 is $2,193,000. What does that mean? In Oregon when you pass away and your net assets total over $1,000,000, you are subject to the Oregon Estate Tax. In Washington, when you pass away and your net estate is over $2,193,000, you are subject to the estate tax.
What can I do?
The question then becomes: what can be done to minimize the estate tax burden in Oregon and Washington? If you are married, you can have a revocable living trust set up and put into place with some very helpful estate planning tactics to help lessen the burden. In estate planning there is a method called the A/B trust. It has also been referred to as the marital/family trust method or an “I love you trust”. The goal of the method is to use all of each spouses’ exemption. Each spouse is entitled to a full exemption. If planned properly, a married couple in Oregon can both pass away with $2,000,000 of assets without paying a dime of estate tax.
To accomplish this, upon death, the first $1,000,000 of assets the decedent has, will be transferred into a trust which the surviving spouse will received the income benefits of the assets placed in the trust. This is generally referred to as the “Family Trust.” They can have access to the principal of the trust, but it is limited. Generally, the next generation, the children, will be named the remaindermen beneficiary of this trust. By setting it up this way, it keeps the value of the assets in this trust out of the surviving spouse’s estate.
Taking advantage of the “Family Trust,” the surviving spouse will still have access to the $2,000,000 of assets the married couple had but pass out $1,000,000 of it out of the surviving spouse’s estate, leaving him or her with $1,000,000 in their gross estate. When they pass away, they can use their $1,000,000 exemption and their assets pass to their heirs free of estate tax.
Is it worth it?
Is it worth it to set up another trust, have the annual tax compliance filings and the administrative tasks that go along with it? To put a savings price on this method, take for example the maximum you could add to it, $1,000,000 multiplied by the maximum estate tax rate in Oregon, 16%, that is a maximum savings of $160,000. The $160,000 in savings is additional money or value that can be transferred on to your heirs.
Where to go from here?
Now is a great time to look at your estate plan. This entails your will, your trust (if you have one), beneficiary designations, advance medical directives, and life insurance. All of these items play an intricate role in your estate plan. At Fitzpatrick, Johnson & Associates CPAs, we can help you navigate these tricky waters by reviewing your plan with you to help ensure it meets your needs and your goal. Give us a call today at (503) 472-0576 to see how we can help you.
Fitzpatrick, Johnson & Associates CPAs is a full-service accounting firm with a team of Certified Public Accountants providing tax, financial statement, and bookkeeping services. We are based in McMinnville, Oregon in the heart of Oregon’s wine country, the Willamette Valley.