For most residents Oregon’s inheritance tax exemption is $1.0 million per decedent. That is true unless decedent qualifies for Oregon’s $7.5 million natural resource credit. The purpose of this inheritance tax credit is to preserve natural resource property (forest, farms and commercial fishing operations) that otherwise might have to be liquidated to pay the Oregon inheritance tax. The bill was passed in 2007 and was amended in 2008. It was supported by nurseries, farmers, commercial fishing operators and winery owners. Because the tax credit is calculated independently from the tax calculation for the taxable estate, the tax credit is not a dollar for dollar offset. The tax credit is designed for smaller operations, it quickly reaches zero when the eligible property reaches $15 million.
In order to qualify for the credit the value of the natural resource property must equal 50% of the adjusted gross estate. Also the property must be transferred to “a member of the family” as defined in IRC Sec 2032A or to a registered domestic partner of the decedent.
You cannot go out and buy the vineyard, woodlot or, farm, just before your death. During 5 out of the last 8 years the decedent or a member of the decedent’s family must have used the property for farm or forest purposes. Fishing operations are exempt from this “look-back” requirement. I guess no one is fool enough to buy a commercial fishing boat in their last years!
If the family operates the vineyard, farm, woodlot or fishing boat in an entity such as a corporation, partnership, Limited Liability Company or trust, the credit is still available provided that at least one of the family members receiving the property “materially” participates in the operations. If the family member disposes of the property or ceases to use it more than three years during the eight years following the decedent’s death that an additional tax will be due based on the portion of the property that is disqualified. The tax is then prorated based on the number of years remaining in the five-year use period. The additional tax is the responsibility of the family member that sold or otherwise ceases to use the eligible property.
The law is complex. Both spouses should be careful to maintain enough natural resource property in their estate so that the 50% requirement is met and that a marital deduction or Oregon special marital deduction is claimed on the Oregon inheritance tax return.
Farmers, ranchers, wood-lot owners, nursery owners, fruit growers, and commercial fishing operators should have their estate plans reviewed to make sure they are eligible for the credit.
Since the Oregon inheritance tax is from 4 to 18% (in addition to any federal estate tax imposed) it is worthwhile checking out this natural resources inheritance tax credit.