If you do not create a trust or will, generally Oklahoma law will determine how your assets will be distributed on your death. If you create a trust and/or will, although your assets should be distributed on your death as you plan, federal estate tax and Oklahoma law occasionally may change your plans in a manner you may not desire.
The Tax Cuts and Jobs Act became law in December 2017 and changed the landscape of estate planning. The estate tax exclusion amount increased to $10,000,000, indexed for inflation, for each individual.[1] However, those changes will finalize on December 31, 2025, and the law will return to the 2017 levels, unless Congress does something to change the law. The following table describes the applicable periods, exclusion amounts and rates.
| Effective for Taxable Years | Estate Tax Exclusion Amount / Rate |
| 2012 through December 31, 2017 | $5,000,000, indexed for inflation / 40% top rate |
| after December 31, 2017, and before January 1, 2026 | $10,000,000, indexed for inflation / 40% top rate |
| January 1, 2026 | ? |
The federal estate tax basic exclusion amount for 2022 is $12,060,000, and for 2023 will be $12,920,000.[2] Due in part to this large amount, currently the federal estate tax does not affect a substantial number of taxpayers. Given the changes and the sunset provision mentioned above, it is likely the basic exclusion amount will change again. If the above Act remains in place, it will revert to $5,000,000 at the end of 2025, adjusted for inflation. If and when that occurs, who pays the tax may again become an important consideration for more people creating estate plans.
The IRS is charged with enforcing the federal estate tax laws. One of the enforcement mechanisms in the IRS arsenal provides the estate tax “shall be a lien upon the gross estate of the decedent”[3] and “[i]f the estate tax . . . is not paid when due, then the . . . beneficiary, who receives, or has on the date of the decedent’s death, property included in the gross estate . . . , to the extent of the value, at the time of the decedent’s death, of such property, shall be personally liable for such tax.”[4] That liability is created by federal law, but placement of who bears the burden of that tax is determined by Oklahoma law. [5]
After a somewhat twisted past,[6] today Oklahoma law provides the estate tax or the inheritance tax[7] imposed as a result of beneficiaries receiving assets of the estate or trust are to be paid by the respective beneficiaries receiving that property which generates the tax, unless there are express directions in the will or trust to the contrary. The court in In re Estate of Anderson v. Karas explained this apportionment rule was created by 68 O. S. Supp. 1974 § 825 and recognized a line of Oklahoma cases beginning with In re Davidson[8] (decided eight years after enactment of § 825) which have applied the doctrine of equitable apportionment.[9]
In re Davidson[10] provides an example of the application of the equitable apportionment rule. There the court found the charitable beneficiaries were not liable for any of the estate tax because the property those beneficiaries received did not generate the tax.[11] As to the non-charitable beneficiaries, the court described the calculation to apportion the estate tax as follows,
We feel a more equitable calculation, in keeping with the statutory mandates, would be simply to determine each beneficiary’s proportionate share of the taxable estate, then multiply that percentage times the total estate tax due to arrive as each beneficiary’s share of those taxes.[12]
It is likely that the decedent in Davidson did not intend for the individual beneficiaries, who may have been family members and relatives, to bear all of the estate tax and the charities to bear none.
To avoid an outcome like that in Davidson, if estate tax and who may end up paying that tax is a concern of an individual in the process of preparing and executing an estate plan, the best course of action is for that person to clearly express in the trust and/or will his or her intent about who will bear the burden of paying that tax.
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[1]This article only addresses individuals who are U.S. citizens.
[2]http://irs.gov/businesses/small-businesses-self-employed/estate-tax last accessed December 8, 2022.
[3]26 U.S.C. § 6324(a)(1).
[4]26 U.S.C. § 6324(a)(2). There are certain exceptions, described in § 6324.
[5]“The ultimate placement of the federal estate tax liability is controlled by state law. Congress intended that the federal estate tax shall be paid out of the estate as a whole and that the applicable state law as to the devolution of property at death should govern the distribution of the remainder and the ultimate impact of the federal tax.'” Matter of Estate of Bovaird, 1982 OK 48, ¶ 8, 645 P.2d 500, 502 (citation omitted).
[6]In re Estate of Anderson v. Karas, 2013 OK CIV APP 65, ¶ 8, 309 P.3d 134, 137-138, describes how Oklahoma law has treated this issue in the past. “Prior to 1965, taxes imposed on death were paid from the assets of an estate. In re Davidson, 1982 OK 27, ¶ 11, 641 P.2d 1110, 1113. In 1974, the Legislature amended section 825 of the Tax Code that provided the rates and method by which estate taxes were to be calculated. 68 O.S. Supp. 1974 § 825 (Repealed by Laws 2006, 2nd Extr. Sess., HB 1172, ch. 42, § 6, eff. January 1, 2010). The result of the 1974 amendment was to impose estate taxes on the inheritance of estate property rather than on the transfer of the decedent’s probate property to the estate at the time of death. . . . The liability imposed by the 1974 amendment to section 825 on recipients of non-probate estate property was recognized in Estate of LeDonne v. Stearman, 1986 OK 77, ¶ 1, 730 P.2d 519, 520.
[7]An estate tax is “a tax on the ‘transfer'” and an inheritance tax “a tax on the ‘receiving’ of assets.” In re Davidson, 1982 OK 27, ¶ 11, 641 P.2d 1110, 1113.
[8]1982 OK 27, 641 P.2d 1110.
[9]2013 OK CIV APP 65 at ¶ 9, 309 P.3d at 138. See also n. 6.
[10]1982 OK 27, 641 P.2d 1110. In In Re Davidson the litigants agreed the beneficiaries “should bear the responsibility for payment of the apportioned estate tax.” 1982 OK 27 at ¶ 8, 641 P.2d at 1112.
[11]1982 OK 27 at ¶¶ 17-22, 641 P.2d at 1113-1114.
[12]1982 OK 27 at ¶ 25, 641 P.2d at 1114.
