Much of the focus when creating your estate plan is on asset distribution. This makes sense given that you want to have control over which of your loved ones will inherit your estate. But sound estate planning requires thoroughness and foresight. If you just throw a plan together at the last minute or on a whim, then you could miss out on opportunities that end up costing your estate and your loved ones far more than you anticipated.
Therefore, as you engage in the estate planning process, it’s crucial that you understand the risks and rewards of each course of action. For many, this includes understanding how taxation may come into play. That leaves many estate planners wondering if Ohio has an estate tax.
Will your assets be subjected to an estate tax?
Ohio doesn’t have an estate tax. While that might give you a sigh of relief, it’s important to recognize that your estate might still be subjected to the federal estate tax. Before that federal tax will kick in, though, your assets have to meet the $13.61 million threshold. That threshold limit is per person, so if you’re married then you and your spouse can double that figure.
If your estate crosses the threshold, then anything in excess will be taxed depending on how much wealth you have in excess of the threshold limit. For example, if you only have $10,000 above the limit, then you’ll only pay 18% in taxes on that excess amount. If, however, you have $1 million or more in excess of the threshold limit, then you’ll have to pay more than $345,000 in addition to 40% of anything over that $1 million mark. Remember, this taxation only applies to assets more than the $13.61 threshold.
How can you reduce the risk of being hit with the estate tax?
If you have a large estate, then you’re probably nervous about the impact that the federal estate tax will have on the wealth that you’ll be able to leave to your loved ones. Fortunately, there are sound planning strategies that you can implement to reduce the risk. This includes:
- Gifting assets: In 2024, you’re allowed to gift up to $18,000 per individual per year without facing any tax consequences. This is an efficient way to reduce the size of your estate while still passing down wealth to your loved ones.
- Creating 529 accounts: These accounts can help pay for a child’s college expenses. By funding it, you remove assets from your estate, and investments up to $18,000 aren’t counted against your lifetime gift tax exemption. So, again, you can support your loved ones while reducing the size of your estate.
- Giving to charity: Donations to charitable organizations have several tax benefits, and they can also significantly reduce the size of your estate so that you avoid taxation as much as possible.
- Using a trust: Some trusts remove assets from your estate so that they aren’t counted for purposes of calculating estate tax. You have to make sure you choose the right trust type, though, which is something your attorney can help you with.
Fully protect your estate when creating your plan
There’s a lot to take into account when creating an estate plan. Be holistic and thorough when creating yours so that your estate and loved ones aren’t taken by surprise by issues like taxation.