An Ohio resident embarking on the estate planning process may quickly realize that several potential liabilities await following their deaths. The cost of probate administration along with the need to settle unpaid debts cuts away at the assets one has to pass on to their beneficiaries.
Opportunities exist for one to limit the liabilities facing their estates. They may craft their estate plans using instruments that help to avoid probate, as well as implement pre-death planning to settle all of their outstanding debts. Yet estate taxes loom large as a potential expense one cannot mitigate.
Planning for federal estate taxes
Yet that assumption may not prove true. While the federal government does levy an estate tax, it also sets an estate tax exemption that allows estates to avoid a tax liability. The Internal Revenue Service shows that the estate tax exemption threshold for 2022 is $12.06 million.
A married couple may jointly extend that amount even further (indeed, effectively doubling their exemption to $24.12 million) through estate portability. Should one leave the entirety of their estate to their spouse upon their death, that amount passes tax-free thanks to the unlimited marital deduction (which allows spouses to pass an unlimited amount to each other). This preserves the deceased spouse’s estate tax exemption. The surviving spouse then files an estate tax return claiming that exemption and combining it with their own. One must not forget this important last step, as portability is not an automatic process.
Reviewing Ohio’s estate-related taxes
What about one’s tax liability at the state level? According to the Ohio Department of Taxation, the state repealed its estate tax in 2013. The estate also does not impose an inheritance tax; however, should one inherit assets from an estate having jurisdiction in another state, they may have to pay that state’s inheritance tax.