Do I need a will if I have a trust?

Yes. Even with a living trust, you need a pour-over will to capture any assets that weren't transferred into your trust during your lifetime. Without one, those assets pass through Oregon's intestacy laws rather than according to your wishes.

What is the difference between a will and a living trust?

A will takes effect at death and must go through probate before assets are distributed. A living trust takes effect immediately, avoids probate, and allows for faster, private transfer of assets to your beneficiaries. Trusts also provide better protection for blended families and beneficiaries who are minors or have special needs.

How much does estate planning cost in Oregon?

Track Town Law offers flat-fee estate planning services in Oregon and Idaho. Fees vary based on the complexity of your plan — whether you need a simple will package, a full revocable living trust plan, or a more complex plan involving Medicaid planning or special needs considerations. Consultations are free.

Do I need an LLC for my small business in Oregon?

Most small business owners in Oregon benefit from forming an LLC. It separates your personal assets from business liabilities, can provide tax flexibility, and signals credibility to clients and vendors. The key is not just forming the LLC but setting it up correctly with an operating agreement, a dedicated bank account, and an EIN.

What does Medicaid planning involve?

Medicaid planning involves structuring your assets and income to qualify for Oregon Medicaid long-term care benefits while protecting as much of your estate as possible. This may involve Medicaid Asset Protection Trusts, spousal protection strategies, and coordinating with VA benefits if applicable. Planning works best when started at least five years before care is needed.

Can I work with Track Town Law if I don't live in Eugene?

Yes. Track Town Law is a fully virtual firm serving clients throughout Oregon and Idaho. All meetings are conducted by video or phone, and documents are signed electronically. You never need to come to an office.

What is Oregon's estate tax threshold?

Oregon imposes its own estate tax with a threshold of $1 million — significantly lower than the federal exemption of $15 million. This means many Oregon families who wouldn't owe federal estate tax may still owe Oregon estate tax. Proper planning with trusts and other strategies can reduce or eliminate this exposure.

How do I get started with Track Town Law?

Start with a free consultation. You can book online at tracktownlaw.com/book-now. Consultations are conducted by video or phone and typically last 30 to 45 minutes. There is no obligation and no charge for the initial meeting.

The Oregon Estate Tax Trap Hiding in Your Vacation Home

Jul 3

Written By Jared Hight

Oregon taxes real estate within its borders even when the owner lives in another state — and taxes Oregon residents on tangible property they own elsewhere. A vacation home in Sunriver or a rental in Bend can trigger an Oregon estate tax bill that catches families completely off guard. Here's how the trap works and how to plan around it.

Most people think of estate tax as something that only matters if you're wealthy, and only in the state where you live. Oregon's estate tax breaks both of those assumptions.

Oregon imposes estate tax not just on its own residents, but on nonresidents who own real property located in Oregon. If you live in California, Washington, or anywhere else and you own a vacation home in Sunriver, a rental property in Bend, or a piece of land on the coast, that Oregon real estate can trigger an Oregon estate tax bill when you die — even though you never lived here a day in your life.

Because of the way Oregon calculates the tax, the results can be surprising, counterintuitive, and expensive. There's a well-established planning strategy that addresses the problem — but it has to be set up correctly and in advance.

How Oregon Taxes Nonresidents

Under ORS 118.010, Oregon imposes its estate tax on two categories of people:

Resident decedents — people domiciled in Oregon at death, taxed on their worldwide estate
Nonresident decedents — people domiciled elsewhere, taxed on real property and tangible personal property located in Oregon

The key distinction is between tangible and intangible property. Under Oregon Administrative Rule 150-118-0010, Oregon defines intangible personal property broadly to include stocks, bonds, bank accounts, partnership interests, and — critically — limited liability company interests.

Here's why that matters: Oregon taxes a nonresident's real property located in Oregon, but it does not tax a nonresident's intangible personal property. Real estate is tangible. An LLC membership interest is intangible. That single distinction is the foundation of the entire planning strategy.

The Fractional Formula That Produces Surprising Results

Oregon doesn't simply tax the Oregon portion of a nonresident's estate at face value. It uses a fractional formula that can produce results most people find deeply counterintuitive.

The formula works like this: Oregon first calculates the estate tax as if the entire estate — everything the person owned, everywhere — were subject to Oregon tax. Then it multiplies that amount by a fraction. The numerator is the value of the Oregon property; the denominator is the total value of the estate.

The surprising consequence is that the size of a nonresident's total estate affects the Oregon tax on their Oregon property. A nonresident with a $2 million estate that includes a $500,000 Oregon vacation home pays Oregon tax calculated differently than a nonresident with a $10 million estate that includes the same $500,000 home — because the tax is calculated on the whole estate first, then apportioned.

The Oregon filing threshold is $1 million. But because of the fractional formula, a nonresident whose total worldwide estate exceeds $1 million may owe Oregon estate tax on their Oregon real property even if the Oregon property itself is worth far less than $1 million. This is the trap: people assume that because their Oregon vacation home is worth $400,000, it's under the threshold and safe. The fractional formula doesn't work that way.

A Worked Example

Suppose a California resident dies owning a total estate of $3 million. Included in that estate is a $500,000 vacation home in Sunriver, Oregon. The other $2.5 million consists of their California home, investment accounts, and personal property — none of it located in Oregon.

Here's how Oregon calculates the tax:

Step 1 — Calculate the tax as if the entire estate were taxable in Oregon. Oregon applies its graduated rate table to the full $3 million estate. Under the Oregon rate table, the tax on a $3 million taxable estate is $206,250 — $152,500 of base tax at the $2.5 million bracket, plus 10.75% of the $500,000 above $2.5 million.

Step 2 — Apply the fraction. The numerator is the Oregon property ($500,000). The denominator is the total estate ($3 million). That produces a fraction of $500,000 ÷ $3,000,000 = 0.1667, or 16.67%.

Step 3 — Multiply. $206,250 × 0.1667 = approximately $34,375 in Oregon estate tax.

That's roughly $34,375 in Oregon estate tax on a $500,000 vacation home owned by someone who never lived in Oregon — triggered entirely because their total worldwide estate exceeded the $1 million threshold. If that same person had owned no Oregon real estate, Oregon would have collected nothing.

(These figures are illustrative and use the current $1 million exemption and rate table. Actual calculations depend on the specific estate, applicable deductions, and the law in effect at the time of death.)

The LLC Strategy

The planning solution is well-established: hold the Oregon real property through a limited liability company rather than owning it directly.

Here's the logic. If you own an Oregon vacation home directly, it's tangible real property located in Oregon — taxable to a nonresident. If instead you own a membership interest in an LLC that owns the vacation home, you no longer own Oregon real property. You own an LLC membership interest, which is intangible personal property — and Oregon does not tax a nonresident's intangible personal property.

The mechanics are straightforward:

Form an LLC, typically in the state where the property is located
Transfer title to the real property into the LLC
Hold your membership interest in the LLC

When you die, your estate owns an intangible LLC interest rather than tangible Oregon real estate. Oregon excludes that intangible interest from the nonresident estate tax calculation. Oregon does not apply a "business purpose" test to the LLC — unlike some other states historically, Oregon respects the LLC structure for this purpose even when the LLC's only asset is a vacation home.

Return to the example above. Had that $500,000 Sunriver home been held in an LLC, the numerator of the fraction would have been $0, and the Oregon estate tax would have dropped from $34,375 to nothing — a complete elimination of the bill, achieved entirely through how the property was titled.

For Idaho residents who own Oregon property, this planning is especially clean. Idaho has no state estate tax, so an Idaho resident with an Oregon vacation home or rental faces the Oregon nonresident trap without any offsetting estate tax at home. As a firm licensed in both Oregon and Idaho, Track Town Law can handle the Oregon LLC and deed work and coordinate it with your Idaho estate plan under one roof — rather than splitting the work between an Oregon attorney for the property and an Idaho attorney for everything else.

The Caveats That Matter

The LLC strategy is powerful, but it only works when implemented properly. Several conditions apply:

Respect the LLC formalities. The LLC must be treated as a genuine, separate entity — with its own bank account, a proper operating agreement, and appropriate documentation. An LLC that exists only on paper, with no separation between the owner and the entity, invites challenge. As covered in the LLC operating agreement post, a properly drafted operating agreement is foundational to the entity being respected.

Plan ahead. Transfers made shortly before death can draw additional scrutiny. The strategy works best when the LLC is established and the property transferred well in advance, as part of a deliberate estate plan rather than a deathbed maneuver.

This addresses estate tax only. Holding property in an LLC does not eliminate income tax on rental income, property taxes, or other ongoing obligations. It's an estate tax strategy, not a general tax shelter.

Coordinate with your entire plan. The LLC needs to work with your will, trust, and beneficiary designations — not against them. An LLC interest passes according to your operating agreement and estate plan, and those need to be coordinated. As covered in the revocable living trust post, a common mistake is creating a structure that isn't properly integrated with the rest of the estate plan.

Get professional advice. This is a strategy that rewards careful implementation and punishes sloppy execution. Both a business attorney and an estate planning attorney — ideally coordinated — should be involved.

Why This Matters

Oregon's estate tax has a $1 million exemption and a top rate of 16% — one of the lowest exemption thresholds and among the more aggressive estate tax regimes in the country. A $2.5 million vacation property, held directly by a nonresident, could produce a meaningful Oregon estate tax bill through the fractional formula. Structured properly through an LLC, that same property may produce no Oregon estate tax at all.

For families with Oregon real estate — whether they live here or not — the difference between owning property directly and owning it through an LLC can be substantial. And the fix is available only to those who plan before death, not after.

Bottom Line

Oregon taxes real property within its borders regardless of where the owner lives, and the fractional formula it uses can produce estate tax bills that catch families completely by surprise. For nonresidents with an Oregon vacation home or rental, and for Oregon residents with real property in other states, the way you hold title can determine whether your heirs face a tax bill from a state you may not even live in.

The LLC strategy is well-established, respected under Oregon law, and effective — but only when implemented carefully and in advance.

At Track Town Law, I help Oregon and Idaho families structure real estate ownership to minimize estate tax exposure and protect what they're passing on. Schedule a consultation here.

This post is for general informational purposes only and does not constitute legal or tax advice. Estate tax planning involving out-of-state property is complex and highly fact-specific. Contact a licensed Oregon estate planning attorney and a tax professional before implementing any strategy.