Oregon Estate Tax Exemption Is Only $1M?! My Parents' House Alone Exceeds That

Just learned that Oregon's estate tax exemption is only $1 million. ONE MILLION. My parents' house in Lake Oswego alone is worth $1.3M, and they have maybe $800K in retirement accounts plus a $500K life insurance policy. Total estate about $2.6M.

They're not "rich" by any stretch — they're retired teachers who bought the house 30 years ago. But apparently they'd owe Oregon estate tax on $1.6M of their estate? The tax rates start at 10% and go up to 16%. This could be $150K+?

Is this really how it works? And what can they do about it? They're 71 and 68.

Unfortunately, yes. Oregon's $1M exemption has been frozen since 2012 and catches a lot of middle-class families, especially in Portland metro where home values have soared.

On a $2.6M estate, the Oregon tax would be roughly $136,000 using the graduated rates (10%-16%). That's real money.

The good news: there are several planning strategies that work well for Oregon:

1. Credit shelter / bypass trust: When the first spouse dies, their $1M exemption shelters that amount in a trust. The surviving spouse's $1M shelters the rest. Combined: $2M exempt instead of just $1M if everything passes outright.
2. Life insurance trust (ILIT): Remove the $500K policy from the estate. That alone drops you from $2.6M to $2.1M and saves ~$50K in OR estate tax.
3. Annual gifting: $19K/year per recipient, no gift tax (Oregon has no gift tax). Over 5 years to 2 kids + 4 grandkids: $1.14M moved out.

The Oregon estate tax guide has a calculator where you can model these scenarios.

I'm in a similar boat but with agricultural property. We have 160 acres of timberland near Bend. The land itself is valued at $2.4M but it's been in our family for 80 years. Our estate attorney told us about the Natural Resource Credit under ORS 118.140 — it basically gives a credit against Oregon estate tax for qualifying farmland, forestland, and fishing property.

If you don't have farm/timber/fishing property this doesn't help, but for those of us in rural Oregon it's a lifeline.

Washington's exemption is $2.193M, which isn't great either, but at least it's double Oregon's. And Washington indexes it for inflation.

I know several people who moved from Portland to Vancouver (WA) specifically to avoid Oregon's estate tax. You save on income tax too since WA has no income tax. The tradeoff is WA's estate tax rates are actually higher (10-20%) but the higher exemption more than compensates for most estates.

My parents would never move — they've been in that house for 30 years and all their friends are there. The credit shelter trust sounds like the most practical option.

Question about the life insurance: the $500K policy is term life that expires when Dad turns 75. Is it even worth setting up an ILIT for something that'll expire in 4 years?

If the policy expires in 4 years and it's term life, the ILIT probably isn't worth the setup cost. The 3-year lookback rule means the policy needs to be in the ILIT for at least 3 years before death to be excluded. So you'd have a 1-year window where it's actually beneficial.

Better use of their time and money: focus on the credit shelter trust (sometimes called an AB trust or bypass trust). This is the single most impactful move for married Oregon couples. It effectively doubles the exemption from $1M to $2M without any gifting or asset transfers.

At $2.6M with $2M sheltered, you're only looking at OR estate tax on $600K — roughly $60K instead of $136K. You've cut the tax by more than half.

We dealt with this 2 years ago when my wife passed. Her estate was $1.8M (house + retirement). Oregon slapped us with a $72K tax bill. I'd never even heard of Oregon's estate tax until the funeral home mentioned it.

What burned me most: if we'd set up a simple credit shelter trust, the tax would have been zero. The attorney would have charged $3-5K. Instead we paid $72K. Please, anyone reading this — if you live in Oregon and your combined estate is over $1M, get a trust set up NOW.

Adding a data point: my client's estate was $1.1M (barely over the exemption). Oregon estate tax: $8,200. The marginal rate at the bottom is 10% but the effective rate on a $1.1M estate is less than 1% because the graduated brackets start slow. So for estates just over $1M, the tax isn't catastrophic. It's estates above $2M where it really bites.

Fun fact for context: Oregon's $1M exemption was set in 2012 when the median Portland home was ~$270K. It's now ~$550K. The exemption hasn't moved. Meanwhile the federal exemption has gone from $5.12M to $13.99M. Oregon legislators have introduced bills to raise the exemption but none have passed.

Quick update: took my parents to an estate attorney. Setting up an AB trust (credit shelter). Total cost: $4,500 for the trust + pour-over wills + updated beneficiary designations. Projected tax savings: ~$76K. Also doing annual gifting to the grandkids' 529 plans. Thanks everyone.

Just found this thread and it's exactly what I needed. Our situation: house worth $780K, retirement $450K, insurance $250K = ~$1.48M total. So we're $480K over the exemption. Oregon would tax that at roughly 10-10.25%. That's maybe $48K in estate tax on what I'd consider a very average estate for the Portland area.

Going to look into the credit shelter trust. Seems like the obvious move for any married Oregon couple above $1M.

Exactly. The credit shelter trust is the single best bang-for-buck move in Oregon estate planning. For your numbers, it would shelter $1M in the bypass trust when the first spouse passes, leaving only ~$480K exposed. Tax drops from ~$48K to roughly $14K. The trust setup is typically $3-5K.

Also consider that Oregon has no gift tax and no clawback on lifetime gifts. So even modest annual gifting ($19K/year to each kid) can bring you below the exemption entirely within a few years.