We have many clients in the great state of Ohio. Our clients in Ohio often inquire about estate taxes.
This post will provide a comprehensive guide to estate tax issues in Ohio. We will also touch base on inheritance tax and gift tax. So let’s get started.
Table of contents
Does Ohio have an estate tax?
Ohio used to have an estate tax many years back. However, it was repealed and they effectively do not levy estate tax to any residents.
Even though this is good news, don’t forget about the federal estate tax. Any Ohio residents with assets greater than the estate limit will still be subject to the tax at the federal level.
Federal estate tax exemption
The estate tax is commonly referred to as the death tax. Whatever you want to call it, do whatever you can to avoid it.
The good news is that very few people will be subject to it. As of now, only about 1/2 of 1% of taxpayers will be subject to it. This is generally the result of the high estate tax exemption.
So this is how the tax is calculated. When someone passes away, an executor of the estate is appointed. One of the tasks that the executor has is to detail out all the assets and all the debt obligations of the decedent.
When it comes to summarizing the assets, you want to include all estate assets. This includes real estate, business businesses, stocks and bonds, other investment accounts, and retirement accounts. Also, don’t forget personal items like cars, boats, planes, and other household items.
Usually summarizing the liabilities is straightforward. Include any mortgages or loans relating to the assets, but you can also include credit card debt and hospital and medical bills. Take advantage of all estate deductions.
Once the assets are netted with the liabilities, if there is an amount left over that exceeds the federal exemption then the estate tax will be levied. The tax rate is 40%, but there is a lot of discussion about increasing this rate in future years. So make sure you do your research beforehand.
Avoiding the Ohio Estate Tax
Since Ohio does not impose or levy an estate tax, you don’t have much to worry about in Ohio. But the federal estate tax could still trip you up. There are strategies that you can use to reduce any issues. Make sure to consider:
- Gifts Below Annual Exemption
- Revocable Grantor Trusts
- Charitable Gift Annuity
- Direct Tuition Payments
- Family Limited Partnerships
- Charitable Remainder Trusts
- Grantor Retained Unitrusts
- 529 Plans
- Direct Medical & Healthcare Payments
- Qualified Personal Residence Trusts
- Donor-Advised Funds
- Minor Trusts
- Special Valuation of Farms and Businesses
- Grantor Retained Income Trusts
- Intentionally Defective Grantor Trust
- Irrevocable Life Insurance Trust
- Grantor Retained Annuity Trusts
- Crummey Trusts
- Qualified Terminable Interest Property
- Dynasty Trusts
Who should consider estate planning?
Estate planning is never easy. But people who are in the following situations might want to closely examine some of the planning strategies:
- Medical and healthcare professionals
- CPAs, engineers, IT professionals
- People with life insurance policies of at least $1 million
- People with multiple rental properties
- Business owners and entrepreneurs
- People who stand to receive a large inheritance
- Retirement accounts in excess of $1 million
- Consultants with significant earning potential
Ohio tax rules and requirements
Ohio has some complex state and local income tax requirements. Of course it also assesses a real estate tax. But at least there’s good news that it does not impose in inheritance, gift or estate tax.
Don’t forget that you have a lot of planning capabilities in order to minimize any estate tax issues. They are a variety of structures including truss and gifts that can mitigate estate tax problems. So make sure you discuss with your attorney and CPA.