The pacific northwest is a magical area to own property in. We get calls frequently from out-of-state residents requesting we transfer their Oregon or Washington properties into the name of their trust, or to add their spouse or child to the deed to their property here to avoid probate.
On its face this is a reasonable request, and many firms might do exactly as requested: prepare the deed, send it for signature, and move on.
However, failure to pause for a second could cost your estate literally tens of thousands, if not hundreds of thousands of dollars in unexpected estate taxes.
Oregon & Washington Charge Estate Taxes on Out-Of-State Residents
Just because you live out of state doesn’t mean you are exempt from estate taxes. Merely owning a house in either state subjects you to estate taxes. They don’t care if it’s just a vacation rental you only sometimes use, or if it’s really your child’s home that you co-signed on.
If your name is on the deed then they will attempt to tax you regardless of where your primary home is.
How do you know if they’ll charge you?
First, add up all your worldwide assets. Literally all of it. Your home in Minnesota, the RV in Texas, the retirement accounts, life insurance, investment accounts, etc. This is your total estate.
If you live in Oregon and this amount is over $1 million then they’ll charge you estate taxes.
If you live in Washington and this amount is over $3 million (adjusted for inflation) then they’ll charge you estate taxes.
If your estate is under, then they won’t!
How much is the tax?
If you are subject to the tax, then you’ll calculate the tax on your total estate as if you were a resident to get your hypothetical tax amount. You’ll reduce your tax bill proportionately.
For example, if your estate is $3 million in total and you own a house in Oregon worth $1 million you’d be subject to the Oregon estate tax because your total worldwide estate is over $3 million. Your hypothetical tax bill if you were an Oregon resident would be $205,000 but you’re not an Oregon resident. So, your tax bill would be reduced by 2/3rds because only 1/3 of your assets are Oregon assets (the $1 million home).
1/3 of $205,000 = $68,333
Your estate would pay $68,333 to the State of Oregon at your death.
This can be particularly problematic when there aren’t sufficient assets to pay this unexpected tax bill, or if your estate gives the Oregon house to one beneficiary without requiring them to pay their ‘fair share’ of the tax bill pushing the tax bill onto the other beneficiaries who didn’t even get the benefit of the Oregon assets in the first place.
Avoid the Estate Tax with an LLC
A sophisticated, and often underutilized tool to avoid the estate tax entirely is to place the property in an LLC. This converts the property from real property subject to the estate tax into intangible personal property subject to the taxes of the state you live in.
If you live in a state that has no estate taxes (which is many of the states) and you’re under the federal threshold then you’d avoid estate taxes all together.
It is vital that the LLC operating agreement properly reflects your trust, the deed is drafted appropriately, the state is updated, and your trust is coordinated to reflect this update but doing so can save your estate significant sums of money.
If you have a mortgage on the property, then transferring the property to an LLC may require your lender’s approval. At Sunstone Planning LLC we have experience in drafting LLC operating agreements and the request for approval to successfully get your lender’s approval without triggering a due-on-sale clause.
The downfalls of creating an LLC
Any strategy to reduce taxes has it’s tradeoffs and this is no exception. Creating an LLC requires annual maintenance. Depending on what state the LLC is created in you’ll need to file annual updates with the Secretary of State. This can often cost between $100-$150 per report. You also need to remember to do this.
This may not seem like a lot but over time the costs of the filing fee and having to remember to file the report can add up. Ten years of reporting x $100 = $1,000 in fees alone. The initial fee to create an LLC ranges from $1,500-$3,000 depending on complexity, sometimes more. These fees are only worth it if you think it’s likely that you’ll have this property in your estate at your death. If you are more likely to sell the property then maybe the risk of taxes now is fine because you’ll sell the property in five years.
You should carefully weigh these risks with not only your lawyer in your home state, but also an Oregon or Washington licensed attorney who can advise you on your specific situation.
Weighing the Tax Against the Costs of an LLC
Sunstone Planning · Estate Tax Worksheet
Individual or trust name, or an LLC?
If you live outside Oregon or Washington but own property there, estimate what that state's estate tax would cost your estate — and weigh it against the yearly cost of holding the property in an LLC instead.
How this is calculated: Oregon and Washington tax a nonresident's estate proportionally — they compute the tax as if your entire worldwide estate were subject to that state's tax, then charge only the fraction equal to (in-state property ÷ worldwide estate). Oregon applies its 10%–16% bracket table (no tax below a $1,000,000 estate); Washington applies its 10%–20% bracket table to the amount over its $3,000,000 exclusion. Figures reflect each state's rate tables currently in effect.
This worksheet is for general education, not legal or tax advice, and it's built for people who live outside Oregon and Washington but own property there — if you live in one of these states yourself, your whole estate may be taxed, not just a share. It doesn't account for deductions, marital planning, portability, the federal estate tax, or your home state's own tax treatment of an LLC interest, any of which can change the result. Talk with your lawyer and an Oregon- or Washington-licensed attorney about your specific situation — Sunstone Planning LLC can help.