Leaving property and assets to loved ones is a way to ensure your hard-earned estate is enjoyed by future generations. Most people want to make the process as easy and painless as possible, since probate and other arrangements can be emotionally fraught and time-consuming—but what about tax liability?
Taxes on an estate are colloquially referred to as a “death tax.” Only certain estates are required to pay taxes on their wealth transfer. Will your heirs have to pay taxes on your estate, too?
Ohio estate tax and inheritance taxes
The state of Ohio no longer levies estate taxes as of 2013, no matter how large the estate may be. However, if you inherit assets from an Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania resident, you may be liable for their state inheritance taxes. Those taxes are paid to the state in which the decedent lived, rather than to the state of Ohio. Furthermore, the tax rates depend on who inherits: surviving spouses are often exempt, and children tend to pay much lower rates if at all.
Keep in mind that IRA and 401(k) account beneficiaries may be subject to state income tax when they withdraw money. However, withdrawal rules are complicated, so be sure to consult with your Dworken & Bernstein estate planning attorney before deciding how to handle your inherited assets.
Federal estate tax
Unlike most states, the federal government does have an estate tax—but it only applies to estates worth over $12.92 million. This is up from 2022, when the threshold was $12.06 million. The tax rate ranges from 18 to 40 percent, depending on the taxable amount (the amount remaining after the $12.92 million exemption).
Estate taxes are assessed on the current fair market value of the assets, which is what they’re worth today. For instance, if you purchased a home for $200,000 in 1980 and it’s worth $1,000,000 today, the government would assess it at its current worth rather than the original purchase price.
If your estate is likely to qualify for federal estate taxes, there are ways to limit your estate’s tax liability. Shielding assets in trust, making strategic gifts, donating to charity and simply spending your fortune can help lower or eliminate tax liability entirely.
For more information about how estate and inheritance taxes could affect you, reach out to the experienced estate planning attorneys at Dworken & Bernstein today.