Feb 27, 2025
Wealthy Americans are well aware of the taxes they face when passing their money to the next generation. The federal estate tax – applied to the transfer of property after death – only affects estates worth more than $13.99 million. In fact, only about 0.14% of decedents (or about 4,000 out of 2.8 million deaths) were expected to pay any estate tax in 2022, according to the Tax Policy Center.
With such a high threshold, you’d think only the ultra-rich need to worry about estate taxes. Right?
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Not if you live in Oregon, which taxes estates as small as $1 million, making it the state with the lowest estate tax exemption in the country. Now, lawmakers are reconsidering that limit, with one state representative even calling Oregon the “most frightening place to die.”
So what’s happening in the Beaver State, and how can you protect your estate from excessive taxation?
Other hidden taxes
Even if your estate avoids federal estate taxes, your heirs could still face an unexpected tax burden.
Thanks to the SECURE Act, most beneficiaries of inherited retirement accounts – such as 401(k)s and IRAs – must withdraw the entire balance within 10 years. This means large, taxable distributions that could push them into a higher tax bracket.
You worked hard to build wealth for your family, but taxes don’t end when you pass away. Between estate taxes and income taxes on inherited accounts, your heirs could see a significant chunk of your legacy go to the IRS.
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Stagnant population
In addition to federal estate taxes, 12 states and the District of Columbia impose their own. In Oregon, that threshold is just $1 million – a figure that doesn’t go as far as it used to. Consider this: the average home price in Oregon is nearly $500,000, per Zillow. When you add up real estate, retirement accounts, life insurance, and savings, it’s not hard to hit that $1 million mark – triggering an estate tax bill for your loved ones.
Republican Rep. Bobby Levy told “The Oregonian” that the state has become “the most frightening place to die.” She co-sponsored a bill to raise the estate tax threshold to $7 million, bringing it in line with New York and Maine.
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Supporters argue that Oregon’s low threshold is driving retirees out of the state, as families look for more tax-friendly places to protect their wealth.
“Given that Oregon’s population has remained stagnant over the past four years at roughly 4.2 million, we should be thoughtful about how to attract and retain older people who are in their prime professional and philanthropic years,” said libertarian think tank Cascade Policy Institute’s president & CEO John A. Charles, Jr.
“How many retirees are moving to Nevada, Idaho, or California – states with no estate tax – just to protect their children’s inheritance?” asked GOP Rep. Kevin Mannix.
"We have paid our fair share of property, gas and other taxes to the state. This archaic and unfair estate tax (money grab) must have the threshold raised to reasonable 2024 standards or legislators should eliminate it as many other states have," wrote one reader of "The Oregonian" to its editor.
Avoiding an estate tax
There are ways that Americans can avoid estate taxes.
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Gift your assets: The IRS allows you to gift up to $19,000 per recipient, per year, tax-free. This means you can gradually transfer wealth to your heirs without triggering estate taxes, helping to stabilize their tax bracket over time.
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Establish trusts: There are several types of trusts that can help you avoid a tax liability. Irrevocable trusts transfer assets out of your estate, making those funds no longer considered part of your estate and not liable to estate taxes.
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Credit shelter: Another option is a credit shelter trust, which allows the surviving spouse of a married couple to pass the estate to beneficiaries tax-free upon their own death. Make sure to consult a tax advisor before establishing a bypass trust.
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Consider relocation: Most states do not impose estate taxes on top of the federal tax. Connecticut has the highest threshold for exemption at $13.99 million. Oregon, Washington and Massachusetts have low thresholds at $1 million to $2 million. Keep in mind that while most states do not have estate taxes, they may impose inheritance taxes.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
