The federal estate tax has always been politically divisive.
Opponents, usually Republicans, argue it essentially is double taxation on a deceased person's wealth. They cite instances where families lose property that's been held for generations when they must pay estate tax. The GOP goal is to eliminate the estate tax.
Supporters, typically Democrats, say the estate tax only applies to a very small group of ultra-wealthy families. They want to expand the amount subject to the levy. Collecting more from those estates, they argue, would help fund programs for middle- and lower-income taxpayers.
At the federal level, the Tax Cuts and Jobs Act of 2017 greatly increased the amount of assets that are exempt from the estate tax. The amount is adjusted annually for inflation.
For 2023, the inflation adjustment means an individual can leave heirs a tax-free estate of up to $12.92 million. That's per person, so a married couple can protect nearly $25.84 million from estate taxation. When the federal tax is collected, the maximum rate is 40 percent.
State estate and inheritance taxes: Still, even though few estates face Uncle Sam's so-called (by opponents) death tax, the idea that the government will take the family farm for taxes is an enduring and electorally effective one.
That dramatic tax result might be more likely at the state level.
Currently, 17 states and the District of Columbia collect estate or inheritance taxes.
Those that collect estate taxes are Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, and Hawaii.
Inheritance taxes, which are collected from, as the name indicates, those who receive bequests, are on the books in six states. Heirs beware in Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
And yes, you read those lists correctly. Maryland is the lone state with both an estate and inheritance tax.
But Oregon has just lessened its estate tax threat to the state's agricultural endeavors.
Oregon eases estate tax cost to some farmers: Beaver State Gov. Tina Kotek on July 13 signed into law a measure that provides a new estate tax exemption for up to $15 million of natural resource (NR) property that is used in a decedent’s farming, forestry, or fishing business.
The exemption could result in up to $2.4 million in Oregon estate tax savings for families who own and operate these types of businesses, according to June Wiyrick Flores of the law firm Schwabe, Williamson & Wyatt PC.
The new NR property exemption takes effect Sept. 24. However, it only applies to decedents who died after July 1, 2023.
Of course, state tax laws are much like their federal cousin. There are some other details.
And, as Flores notes, while this new law presents a chance for certain Oregon families to minimize their state estate tax costs, they should meet with tax and legal advisers to ensure they meet the NR Property exemption's eligibility requirements.
That's always a good idea when it comes to estate taxes, at both the federal and state levels.
You also might find these items of interest:
- Tax-smart ways grandparents can help pay for college
- Just 1.1% of family farms face estate tax under Biden plan
- Billionaires make literal wealth preservation moves to avoid state estate taxes
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