
Proper estate planning includes taking care of your family even when you are gone. Unfortunately, the inheritance tax prevents your loved ones from receiving all of your hard-earned money. Any estate valued at over $338,333 is subject to the tax in Ohio. An estate includes any assets such as real estate, bank and investment accounts, trusts and tangible property and life insurance proceeds that are paid to the estate. With the inheritance tax chipping away at your family's financial future, you are forced to prepare early. Fortunately, there are various ways you can avoid the state inheritance tax.
Establish a living trust. A living trust is also known as a “Revocable Living Trust with an AB Provision.” You place your assets into the trust. Appoint yourself and your spouse as the trustees to remain in control of your estate. In the event of your death, your spouse remains trustee with full access to the assets. This reduces inheritance tax because the exemption amounts for you and your spouse are combined. When the surviving spouse passes away, the assets are distributed to your beneficiaries. In addition to lowering the inheritance tax, the living trust also keeps the estate out of probate.
Utilize life insurance. According to the Ohio tax code, life insurance benefits made payable to beneficiaries are not calculated in the value of the estate. As long as you do not make the life insurance payable to the estate, the money will not be subject to inheritance tax. Beneficiaries also do not pay an income tax on life insurance proceeds. Life insurance policies can often be the most desirable assets to possess. Another option is to take out a life insurance policy to help cover some of the inheritance taxes your family will pay.
Gift your relatives. You can reduce your estate by gifting your relatives with assets while you are still alive. Not only will you be lowering the amount of your taxable estate, but you will also be providing assistance to your family while you are still here to see them enjoy it. Currently, the IRS allows $12,000 a year per person or $24,000 per married couple to be gifted. In a lifetime, you may gift up to $1 million before having to pay a "gift tax."
References
- Hyers & Associates: Estate Tax Planning
- Internal Revenue Service. "Deceased Taxpayers – Filing the Estate Income Tax Return, Form 1041." Accessed Jan. 30, 2020.
- JRC Insurance Group. "States with an inheritance tax." Accessed Jan. 17, 2020.
- Internal Revenue Service. "Instructions for Form 706 (08/2019)." Accessed Jan. 17, 2020.
- Iowa Department of Revenue. "Iowa Inheritance Tax Rates." Accessed Jan. 17, 2020.
- Maryland Office of the Register of Wills. "Administration of Estates in Maryland," Pages 1-2. Accessed Jan. 17, 2020.
- Kentucky Department of Revenue. "A Guide to Kentucky Inheritance and Estate Taxes," Page 1. Accessed Jan. 17, 2020.
- Maryland Office of the Register of Wills. "Administration of Estates in Maryland," Page 1. Accessed Jan. 17, 2020.
- Hawbaker Law Office. "Nebraska Inheritance Tax," Pages 1, 3. Accessed Jan. 17, 2020.
- New Jersey Department of Treasury. "Inheritance and Estate Tax Definitions." Accessed Jan. 30, 2020.
- New Jersey Department of Treasury. "Inheritance Tax Beneficiary Classes." Accessed Jan. 17, 2020.
- New Jersey Department of Treasury. "Inheritance and Estate Tax Branch." Accessed Jan. 17, 2020.
- Pennsylvania Department of Revenue. "Inheritance Tax." Accessed Jan. 17, 2020.
- Bucks County Register of Wills. "Pennsylvania Inheritance Tax." Accessed Jan. 17, 2020.
- Internal Revenue Service. "Frequently Asked Questions on Estate Taxes." Accessed Jan. 17, 2020.
- Internal Revenue Service. "Estate Tax." Accessed Jan. 17, 2020.
- Office of the Law Revision Counsel of the United States House of Representatives. "26 USC 2056: Bequests, etc., to surviving spouse." Accessed Jan. 17, 2020.
- Urban-Brookings Tax Policy Center. "How do state estate and inheritance taxes work?" Accessed Jan. 17, 2020.
Writer Bio
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.