Estate and Gift Tax Planning for Your Wealth Protection

By Kimberly Pepion, Partner

Estate and gift tax rules often cause confusion, and for good reasons. They’re designed to work together, yet Oregon adds its unique twists. Understanding how federal and state rules interact is key to protecting your wealth and planning your legacy.

How the Federal System Works

At the federal level, the estate and gift tax systems share a single lifetime exemption, also called the unified credit. This means one exemption covers both taxable gifts made during life and transfers at death.

• Federal lifetime exemption (2025): $13.99 million per person (or $27.98 million for married couples using portability)
• Annual gift exclusion (2025): $19,000 per recipient ($38,000 for couples splitting gifts)

Here’s how it works:
If you give your child $50,000 in 2025, the first $19,000 qualifies for the annual exclusion. The remaining $31,000 is considered a taxable gift but you won’t owe any tax right away. Instead, that $31,000 simply reduces your lifetime exemption from $13.99 million to $13,959,000. Only once your total lifetime gifts and estate exceed the exemption would that federal tax be due. If you are a married couple splitting gifts in this example you could gift $38,000 to your child and your lifetime exemption would only be reduced by $12,000.

Looking Ahead to 2026
Under the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, the prior sunset provision that would have reverted the exemption to a lower amount after 2025 was eliminated. Instead, the higher exemption is made permanent, with annual inflation adjustments continuing thereafter. Starting January 1, 2026, the federal lifetime exemption will increase to $15 million per person or $30 million for married couples.

How Oregon’s Estate Tax Works

For most Oregon residents, the state’s rules have a bigger impact than the federal system.

• Oregon’s exemption: $1 million per person
• Tax rates: 10%–16% on amounts above that threshold
• No portability: A surviving spouse can’t use a deceased spouse’s unused exemption

Unlike the federal government, Oregon does not have a gift tax, which means gifts you make during life – no matter the size – are free from Oregon-level tax. However, the state does tax estates valued above $1 million at death, based only on assets you still own at that time.

This creates a planning opportunity: If you own $2.5 million in assets and gift $1 million during your lifetime, your Oregon taxable estate drops to $1.5 million. Oregon estate tax would then apply only to the amount above $1 million (in this case, $500,000).

Example:
Suppose an Oregon resident passes away with an estate valued at $2.5 million. Without planning, roughly $1.5 million would be subject to Oregon estate tax, which could result in more than $150,000 in state tax liability. However, by gifting $500,000 or more during life, or by moving appreciating assets into a trust, those taxes could be significantly reduced or eliminated.

Even moderate estates can exceed Oregon’s $1 million threshold once you factor in home values, retirement accounts, or ownership in a family business. Many Oregonians who don’t consider themselves “wealthy” still face potential estate tax exposure.

What This Means for You

Thoughtful planning can make a big difference for Oregon business owners and families. Consider these steps:

1. Use Lifetime Gifting to Your Advantage
   Because Oregon has no gift tax, gifting assets during life can meaningfully reduce your estate. Annual federal exclusions ($19,000 per recipient in 2025) let you transfer wealth gradually while keeping future growth outside your estate.
2. Coordinate with Federal Rules
   Gifts above the annual exclusion use part of your federal lifetime exemption but still reduce your Oregon exposure. Large gifts often require an IRS filing, but that doesn’t mean tax is due.
3. Plan Ahead for Married Couples
   Oregon doesn’t allow a surviving spouse to use the other’s remaining $1 million exemption. A Credit Shelter (Bypass) Trust can preserve both exemptions and minimize tax on the second spouse’s estate.
4. Incorporate Charitable Giving
   Donations to qualified charities during life or at death can reduce taxable estates and support causes that matter to you.

Conclusion

It’s important to note that estate and gift tax planning isn’t just for the ultra-wealthy. Because Oregon’s exemption is relatively low, proactive strategies like gifting, trust planning, and charitable giving, can help protect your assets and your family. The earlier you start, the more options you have.

And finally, effective planning for estate and gift tax often involves collaboration between your CPA, attorney, and financial advisor. Together, they can help design a strategy that balances tax efficiency with your family’s goals and long-term legacy. Contact your Kernutt Stokes tax advisor today.

Additional KS Advisor Resources

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