On July 13, 2023, Governor Tina Kotek signed into law SB 498, which provides a new Oregon estate tax exemption for up to $15 million (the NR Exemption) of natural resource property that is used in a decedent’s farming, forestry, or fishing business (the NR Property”). This new law goes into effect on September 24, 2023, however, it only applies to decedents who died after July 1, 2023. 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.
Currently, Oregon allows for a credit against the Oregon estate tax (the NR Credit) for certain NR Property if the decedent’s estate meets the eligibility requirements. The NR Exemption’s eligibility requirements have similar categories to the NR Credit requirements, however there are significant differences between the NR Credit and the NR Exemption. It may be easier for a decedent’s estate to meet the NR Exemption’s eligibility requirements. An estate may only elect to apply the NR Credit or the NR Exemption—it cannot use both.
The NR Exemption requires the decedent to have owned the NR Property for at least five years before their death. In addition, the decedent or any family member of the decedent must have materially participated in the business using the NR Property for at least 75% of the days of each of the five calendar years immediately prior to the decedent’s death. Generally, material participation requires active participation—collecting rent for leased acreage is not active participation. “Family member” is broadly defined by the new law and includes anyone who is related to the decedent within the third degree by blood, marriage, adoption, civil union, or domestic partnership.
Upon the decedent’s death, the NR Property must be transferred to one or more of the decedent’s family members who continue to own the NR Property for at least five consecutive years after the decedent’s death. Additionally, any family member of the decedent must materially participate in the business at least 75% of the days of each of the five calendar years following the decedent’s death. If, during the five calendar years after the decedent’s death, the NR Property is sold or transferred to a person who is not the decedent’s family member, or there is no material participation by a family member of the decedent, then there will be an additional tax imposed equal to the Oregon estate tax that would have been paid at the decedent’s death.
This new law presents a planning opportunity to minimize Oregon estate taxes for families who operate farming, forestry, or fishing businesses. The estate and succession plan for these families should be reviewed to determine whether the owner’s estate will meet the eligibility requirements.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
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