Dear Clients:
As you may know, Oregon Senate Bill 498 was signed into law by Governor Kotek on July 13, 2023. The new law provides an available $15 million Oregon estate tax exemption for decedents who engage in the active management of Natural Resource Property (e.g., farming, forestry, and fishing) and who meet certain requirements outlined herein. This exemption is different than the prior Natural Resource Property Credit Election law, the provisions of which are discussed in further detail below.
The newly enacted Natural Resource Exemption may be applied to estates of decedents dying on or after July 1, 2023. The law also created various amendments to the prior Natural Resource Property Credit Election law, effective as of September 24, 2023.
The Natural Resource Exemption, which is capped at $15 million, may be applied to a decedent’s estate provided the following requirements are met:
- The property meets the definition of Natural Resource Property. “Natural Resource Property” is defined as (1) real property used as forestland or as forestland homesites (not to exceed 5,000 acres), or that is in farm use (no acreage limitation); (2) timber or trees; (3) crops, fruits, or other horticultural products, both growing and stored; (4) livestock, poultry, fur-bearing animals, bees, dairying animals, equines, aquatic species, birds or other animal species, including stored products or by-products; (5) nursery stock (all botanically classified plants or any part thereof, such as floral stock, herbaceous plants, bulbs, buds, corms, culms, roots, scions, grafts, cuttings, fruit pits, seeds of fruits, forest and ornamental trees and shrubs, berry plants, and all trees, shrubs and vines and plants collected in the wild that are grown or kept for propagation or sale); (6) boats, gear, equipment, vessel licenses or permits, commercial fishing licenses or permits and other real or personal property used in the operation of a fishing business; (7) real or personal property used to process and sell the catch of a fishing business in fresh, canned or smoked form directly to consumers, including a restaurant with seating capacity of fewer than 15 seats at which catch from the fishing business is prepared and sold; (8) an operating allowance (cash or cash equivalent) that is spent, maintained, used or available for the operation of a farm business, forestry business or fishing business and not spent or used for any other purpose; and/or (9) any other tangible and intangible personal property used in the operation of a farm business, forestry business, or fishing business.
- The Natural Resource Property is owned by the decedent for at least five years prior to decedent’s date of death.
- During at least 75% of the days of each of the five years immediately preceding the decedent’s date of death, the decedent, or any family member of the decedent, “materially participated” in the Natural Resource Property business (i.e., material participation means that the individual managed and/or operated the Natural Resource Property business).
- The Natural Resource Property interests are transferred as a consequence of the decedent’s death to one (or more) family member(s).
- The Natural Resource Property interests are subsequently owned by the family member(s) of the decedent for at least five years following decedent’s date of death.
- During at least 75% of the days of each of the five years immediately following the decedent’s date of death, the family member(s) of the decedent “materially participated” in the Natural Resource Property business.
In the event the Natural Resource Exemption is filed on behalf of the decedent’s estate and the tax benefit taken, but the requirements of the Exemption are not fulfilled, a tax shall be imposed. Failure of the requirements include: (1) the Natural Resource Property for which the exemption was allowed was subsequently sold, or otherwise transferred to a person other than a family member of the decedent, during the five calendar years following the decedent’s date of death; or (2) the material participation requirement is not met. The tax liability imposed shall be the amount of the tax that would have been imposed had the transferred Natural Resource Property been included in the decedent’s taxable estate. Upon receiving notice of a subsequent sale or other transfer of Natural Resource Property for which an exemption had been claimed, or upon receiving notice that the material participation requirement had not been met, the Oregon Department of Revenue is to immediately proceed on collecting the additional tax.
The Natural Resource Credit (ORS 118.140), the law that pre-existed this new Natural Resource Exemption, may be applied to a decedent’s estate provided that the following requirements are met:
- The property meets the definition of Natural Resource Property (as outlined above).
- The Natural Resource Property was managed, owned, and/or operated by decedent for five of the eight years prior to the decedent’s date of death.
- The total value of the decedent’s estate did not exceed $15 million.
- The total value of Natural Resource Property in decedent’s estate is at least 50% of the total adjusted gross estate (i.e., property located in the state of Oregon).
- The Natural Resource Property was transferred to family member(s) of the decedent after decedent’s death.
- The family member(s) of the decedent managed, owned, and/or operated the Natural Resource Property for five of the eight years immediately following the decedent’s date of death.
It is important to note that for decedent estates who qualify for either the Natural Resource Exemption or the Natural Resource Credit, only one of the laws may be applied. If you have additional questions regarding the Natural Resource Exemption, the Natural Resource Credit, or any of the changes to ORS 118.010, please give our office a call at (503) 399-1070 to schedule an appointment, so we may address and answer your questions.