When people ask questions about how taxation impacts asset transfers after someone passes away, the news is pretty good for the most part. An inheritance is not looked upon as taxable income, and this includes insurance policy proceeds.
A small handful of states have inheritance taxes, but fortunately for us, Ohio is not one of them. Plus, some states have state level estate taxes, but we no longer have this type of tax in Ohio.
A lot of people wonder if you have to pay capital gains tax on appreciated assets that have been bequeathed to you. The answer to this question is no, because you get a step up in basis. For the purposes of capital gains taxes, the value of the assets are equal to the value when you assume ownership of them.
This being stated, if you maintain possession of the assets and they continue to appreciate, capital gains taxes would be applicable if you realize a gain. In this context, the term “realize” refers to the act of selling the assets.
2020 Federal Estate Tax Parameters
Though there is no state inheritance tax or estate tax in Ohio, people that reside in every state in the union are potentially subject to the federal estate tax. This tax carries a 40% maximum rate that can have a very significant impact on your legacy if you are exposed, but most families never have to pay it.
This is because there is a credit or exclusion that allows you to transfer a certain amount of property before the estate tax would become applicable. A figure of $11 million was put into place as a result of the tax cuts that were implemented a couple of years ago, and there have been subsequent adjustments to account for inflation.
The figure for 2020 has been released. For the rest of this year, the exact amount of the federal estate tax exclusion is going to be $11.58 million. To be clear, only the portion of an estate that exceeds this amount would be subject to the federal death tax.
We should point out the fact that the federal estate tax exclusion is portable between spouses. This means that a surviving spouse could add the exclusion that was allotted to their deceased spouse to their own exclusion.
On the subject of spouses, there is an unlimited marital deduction. People that are legally married in the eyes of the law can transfer any amount of money to one another free of estate taxes, as long as the individuals in question are American citizens.
Download Our Estate Planning Worksheet
Our attorneys have developed a very useful worksheet that you can use to gain a more thorough understanding of the estate planning process. We get a lot of positive feedback from people that have taken the time to go through it, so you should definitely take advantage of this opportunity.
There is no charge to access our worksheet, and you can click the following link to get your copy: Free Estate Planning Worksheet.
We Are Here to Help!
There are countless different resources here on our website that we invite you to access, and they are all offered free of charge. While written information is great, there comes a time when you know enough to recognize the fact that you should sit down and discuss your legacy goals with an attorney.
We would be more than glad to gain an understanding of your situation and provide you with the appropriate recommendations. You can schedule a consultation right now if you give us a call at 513-721-1513, and you can alternately send us a message through our contact page.