The Taxes and Expenses Article in Agile EP establishes the default rules governing how debts, administration expenses, and estate taxes are handled at death in Oregon estate plans. This includes the apportionment of federal estate tax and Oregon estate tax, as well as the allocation of debts and administration expenses.
In Oregon estate planning, revocable trusts are typically the primary planning vehicle, with wills used primarily as pour-over instruments to transfer any probate assets into the trust. As a result, the operative tax allocation provisions most often appear in the revocable trust agreement, although the substantive rules are the same regardless of whether the plan is trust-based or will-based.
Because Oregon imposes a separate estate tax with a significantly lower exemption than the federal system, estate tax apportionment analysis is often relevant even when no federal estate tax is due.
Why Tax Apportionment Requires Careful Review
Agile EP's taxes and expenses provisions create a structural default. They are not exhaustive and do not reflect every possible method of estate tax apportionment or expense allocation. Each client's plan must be reviewed in light of the client’s asset structure, beneficiary design, marital status, and tax exposure.
The issue is not whether estate tax is owed. The issue is who pays it.
Estate tax apportionment may produce unintended economic consequences when:
A significant proportion of wealth is held in retirement accounts or beneficiary-designated assets
The residuary beneficiaries differ from non-probate beneficiaries
There is a blended family
Probate assets pass to a spouse, but retirement assets pass to children
The residue includes charitable beneficiaries
The estate or trust lacks liquidity
State estate tax apportionment statutes interact differently with federal recovery provisions
In these circumstances, the tax burden can shift dramatically from one beneficiary class to another, undermining dispositive intent.
This article explains how Agile EP's default taxes and expenses provisions operate in Oregon plans.
First Death Allocation for Married and Unmarried Couples
In plans using marital deduction planning, tax apportionment and expense allocation operate differently at the first death. This structure preserves the marital deduction and maximizes use of the deceased spouse’s exemption.
The discussion below assumes a traditional Credit Trust structure in which an Oregon Special Marital Property (OSMP) election is not made over the Credit Trust. If an OSMP election is made, the allocation and tax consequences at the first death may differ depending on the structure of the election and the governing instrument.
Estate Taxes at the First Death
If estate tax is due at the first death (uncommon federally but possible under Oregon law), estate taxes are apportioned to the portion of the estate not elected for the marital deduction.
For example:
In a Credit Trust structure, estate taxes are paid first from property passing to the Credit Trust. If that share is insufficient, taxes are paid from the residue. This preserves the marital share.
Expense Allocation at the First Death
Expense allocation at the first death is structured around whether an expense will be deducted on the estate tax return.
If an estate tax deduction is claimed for a debt or expense, allocating that expense to the marital share does not reduce the marital deduction in net economic terms because the deduction reduces the taxable estate.
For example:
If an estate tax deduction is claimed, the expense is allocated first to the residue (typically the marital share) and then to the Credit Trust if necessary. If no estate tax deduction will be claimed, the expense is allocated first to the Credit Trust share and then to the residue if necessary.
Unmarried Couples Using Marital-Style Planning
Some unmarried couples structure plans similarly to married couples for dispositive purposes, even using "Credit Trust" nomenclature.
- If the parties are legally married at the decedent’s death, the first-death estate tax apportionment and expense allocation operate as described above.
- If the parties are not legally married at death, no federal or Oregon marital deduction is available.
In that circumstance:
Estate taxes are generally apportioned to the residue, subject to certain exceptions discussed below.
The deductible-versus-non-deductible expense sequencing does not apply.
Agile EP forms include conditional planning in case unmarried partners later marry without updating their documents.
Default Rule: Taxes and Expenses Paid from the Residue
Other than the two scenarios described above, the Agile EP tax allocation structure is the same:
At the death of a single individual
At the second death of a married couple
At the death of each partner when planning as unmarried individuals
At the second partner’s death when planning in a manner similar to married spouses
In each of these circumstances, the default allocation is described below.
Under Agile EP’s Taxes and Expenses Article, all debts, administration expenses, and estate taxes are charged to and paid from the residue of the estate or trust, unless an Estate Tax Allocation Exception (as defined in the document) applies.
The term “estate taxes” is specifically defined in the Definitions Article to include all federal, state, local, and foreign estate, inheritance, and other similar taxes and duties imposed by reason of the decedent's death.
Estate Tax Allocation Exceptions
Agile EP's Taxes and Expenses Article identifies specific Estate Tax Allocation Exceptions. When one applies, the estate tax attributable to that property is charged to the property generating the inclusion (and can be recovered if necessary).
The Estate Tax Allocation Exceptions include:
Section 2036 Property
Property included in the decedent's gross estate under IRC §2036 (retained life estate or retained income) bears the estate tax attributable to that inclusion.
Section 2038 Property
Property included in the decedent's gross estate under IRC §2038 (retained power to alter, amend, revoke, or terminate) bears the estate tax attributable to that inclusion.
Section 2041 Property
Property included in the decedent's gross estate under IRC §2041 related to a general power of appointment bears the estate tax attributable to that inclusion.
Section 2042 Property
Life insurance included in the decedent's gross estate under IRC §2042 due to retained incidents of ownership bears the estate tax attributable to that inclusion.
Section 2044 Property
QTIP property included in the decedent's gross estate under IRC §2044 is subject to recovery under IRC §2207A unless recovery is waived in the governing instrument.
In Agile EP's documents, the Marital Deduction Article contains coordinated language directing that an included QTIP Trust bear the “2207A tax amount” of federal and/or state estate tax attributable to its inclusion, including appropriate coordination for GST non-exempt portions. The “2207A tax amount” is calculated by comparing the estate tax with and without the QTIP property; the difference is allocated to that property.
Disclaimed Property
Any estate taxes resulting from disclaimers are allocated to the disclaimed property.
GST Taxes
GST tax imposed under IRC §2603 is payable from the transferred property generating the tax.
The default clause also protects property to which GST exemption has been allocated, providing that such property will not bear debts, expenses, or estate taxes unless insufficient other property is available.
Certain Nonprobate Assets Do Not Pay Their Own Tax
Unless captured by an Estate Tax Allocation Exception, the following nonprobate assets generally do not bear their own estate tax burden or administration expenses under the default structure:
Retirement accounts (IRAs, 401(k)s, etc.)
Annuities
Joint tenancy with right of survivorship property
Transfer-on-death (TOD) accounts
Payable-on-death (POD) accounts
Beneficiary-designated brokerage or bank accounts
Although these assets are included in a decedent's gross estate for estate tax purposes, they typically are not included by virtue of IRC §§2036, 2038, 2041, or 2042. Therefore, tax attributed to those assets (if included, for example, under IRC §§2033 or 2040) is paid from the residue of the estate or trust.
As a result, residuary beneficiaries effectively subsidize the tax attributable to these types of nonprobate assets.
If a client intends for a specific asset (for example, a retirement account or POD account) to bear estate taxes, that result may not be accomplished by the default Agile EP provisions. The document must be manually revised to override the default structure. Absent a modification, the residue bears the tax burden.
Note About Oregon Estate Tax
Despite the references to federal estate tax statutes, the Taxes and Expenses Article in Agile EP applies to Oregon estate tax. Oregon estate tax is imposed under ORS 118.007 on the Oregon taxable estate. The Oregon taxable estate is defined in ORS 118.010 and is generally based on the federal taxable estate determined under IRC §2051, subject to certain state-specific modifications.
Because Oregon estate tax is calculated using the federal taxable estate as its starting point, many of the federal estate tax inclusion rules discussed in this article—such as those under IRC §§2036, 2038, 2041, 2042, and 2044—also affect the Oregon estate tax base.
The governing instrument generally controls how estate taxes are allocated among beneficiaries. In trust-based estate plans, the Trustee administers these obligations under the authority granted in the trust agreement, consistent with the trustee’s powers under ORS 130.725 to pay taxes and expenses of administration.
Under an Agile EP estate plan, Oregon estate tax is therefore allocated according to the tax clause in the trust or will, unless the document is specifically modified.
Federal Portability Election
In married couple planning and separate from the estate tax allocation provisions, the Agile EP Taxes and Expenses Article directs the Trustee or Personal Representative to make a timely portability election under IRC §2010(c). The purpose of this election is to transfer the Deceased Spouse’s Unused Exclusion Amount (DSUE) to the surviving spouse.
Portability reduces the size of the federal taxable estate at the surviving spouse’s later death. It does not alter how estate taxes are apportioned among assets at death, and it does not apply to Oregon estate tax.
Costs associated with making the election are specifically identified as proper administration expenses of the decedent's estate or trust.
Allocation Within the Residue — Effect of Percentage Shares
In many plans, the residue of the estate or trust is divided into percentage shares rather than distributed as a single block.
When the residue is allocated among multiple beneficiaries—including one or more charitable beneficiaries—the allocation rules operate in two steps:
Estate taxes and expenses are charged to the residue as a whole.
They are then apportioned among the residuary shares in accordance with the governing allocation rules.
Estate taxes are apportioned proportionately only to the share(s) of the residue passing to non-charitable beneficiaries so as to maximize the charitable deduction available to the estate.
Debts and administration expenses are similarly allocated in a manner designed to preserve available deductions and avoid unnecessarily reducing the value of charitable residuary shares.
This structure is significant because a charitable residuary gift is not a specific bequest; it is a percentage share of the residue. Even so, under the Agile EP allocation framework, estate taxes are effectively shifted away from the charitable residuary share and borne by the non-charitable residuary shares in order to maximize tax efficiency.
Any descriptions above are high-level summaries of selected provisions. They are provided for general reference only and are not a substitute for reviewing the actual document language. The governing instrument controls in all circumstances.