When one spouse dies, U.S. tax law allows the surviving spouse to inherit an unlimited amount from the other without paying estate tax right away. This rule is called the unlimited marital deduction. Without careful planning, though, this deduction can create a surprise tax bill when the surviving spouse passes away.
The Problem
Consider this example: Bill and Carol are married, and each owns $1 million in assets. Bill dies first and leaves everything to Carol. Because of the marital deduction, Carol pays no estate tax when she inherits Bill’s $1 million. Later, Carol’s estate grows to $2 million. Under Oregon law, only $1 million is exempt from state estate tax. The remaining $1 million is taxed at rates starting at 10% (increasing to 16% for estates valued at more than $10 million), which could cost the family more than $100,000 in avoidable tax liability.
Many Oregon residents assume both spouses’ exemptions automatically apply. But that is not true unless the estate plan includes the right structure. Bill and Carol’s plan didn’t, so they lost Bill’s $1 million exemption.
Ways to Fix the Problem
Here are four ways Bill and Carol could have avoided this result:
1. Create a Marital or Bypass Trust
Bill could have placed his $1 million in a trust for Carol’s benefit. She could use the trust income and, if needed, some principal. Because the trust assets wouldn’t count toward her taxable estate, both spouses’ $1 million exemptions would apply. This Marital Trust – often called a Credit Shelter, Bypass, or Disclaimer Trust – could protect up to $2 million from Oregon estate tax.
2. Make Lifetime Gifts
Bill could have left his $1 million directly to Carol. She, with the help of her financial advisor, could then make lifetime gifts to children or charities. These gifts reduce the size of her taxable estate. However, balancing lifetime support with giving can be tricky, especially when considering long-term care needs.
3. Refuse the Inheritance (Disclaimer)
Carol could have refused—or “disclaimed”—the inheritance. In that case, Bill’s assets would pass directly to their children or another beneficiary. This strategy preserves Bill’s exemption, but most couples prefer to ensure the surviving spouse has enough for their own care.
4. Leave Excess Assets to Charity
Carol could plan for any amount above the $1 million exemption to go to charity. Because charitable gifts are fully deductible, this approach can eliminate estate tax entirely.
Each of these options helps Oregon couples protect family wealth and avoid paying unnecessary estate taxes.
Right-Sizing the Plan
Marital deduction planning matters for couples who own more than $1 million in total assets, including real estate, retirement accounts, and life insurance. For example, if Bill and Carol each owned $750,000, Bill could leave $500,000 in a shelter trust and $250,000 directly to Carol. When Carol later dies, her $1 million estate would still fall under Oregon’s exemption—no estate tax owed.
Federal vs. Oregon Estate Taxes
This article focuses on Oregon’s estate tax. Federal estate tax still applies, but only to very large estates. The federal exemption is $13.99 million per person in 2025 (increasing to $15 million in 2026).
Most Oregon families don’t owe federal estate tax, but they do need to plan for Oregon’s $1 million threshold. Sometimes it even makes sense to pay a small Oregon tax after the first spouse’s death to avoid a larger federal tax later.
Call to Action: Protect Your Family’s Future
If you and your spouse together own more than $1 million in assets and don’t have an estate plan, your heirs could face unnecessary estate taxes. A properly structured trust-based or will-based plan can prevent that outcome.
Already have a plan? Review it. Make sure it includes one of the following:
- a Disclaimer Trust
- a Credit Shelter Trust
- a Bypass Trust
- another type of Marital Trust that activates when the first spouse dies
If your plan doesn’t include one—or you’re unsure—it’s time to update your documents. Protect both exemptions and reduce future Oregon estate taxes.
Final Thoughts
Estate planning isn’t just about leaving everything to your spouse. It’s about using both $1 million Oregon exemptions effectively. A well-designed plan keeps your legacy intact, minimizes taxes, and provides peace of mind for your family.
If you’d like to confirm that your plan protects both exemptions, contact Catalyst Law today to schedule an estate plan review.
📞 Call us today to speak with a team member
💻 Or complete the Online Interest Form to get started