INHERITANCE TAX PLANNING
In December 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (2010 Tax Relief Act). Among other things, the 2010 Tax Relief Act increased to $5,000,000 per person the amount that could be excluded from federal inheritance taxes. Potentially, this meant that married people could pass $10,000,000 free of any federal tax for persons dying in 2011. The amount of the exclusion was scheduled to increase so that for persons dying in 2017, $5,490,000 could be excluded.
The Tax Cuts and Jobs Act of 2017 (“TCJA”) doubled the applicable exclusion to $10,000,000, and it provided for annual inflation adjustments. For 2019 the exclusion was $11,180,000. Like previous federal acts, the TCJA includes a sunset provision that provides that the exclusionary amount will revert to $5,000,000 on January 1, 2026 unless Congress acts to extend it. These exclusionary amounts apply to gifts made during a lifetime or at death.
In contrast, the State of Oregon provides for an exclusion of only $1,000,000 per person or $2,000,000 for a married couple. There is no gift tax in Oregon and this exclusion applies only to transfers that occur at death.
For people having an estate that is valued at more than $1,000,000, tax planning should be carefully examined. For married people, further planning sometimes involves the creation of living trusts funded and administered so that each spouse takes full advantage of available state and federal exclusion amounts. But, there are other techniques for avoiding or minimizing inheritance taxes that should also be considered.