You may have heard about taxes on inheritances. There is such a thing as an estate tax, where the federal government imposes a tax on assets that are being transferred if those assets exceed the amount of the lifetime estate tax exclusion. In 2014 the amount of this exclusion is $5.34 million.
Some states impose estate taxes on the state level. If you live in one of these states, you could be forced to pay both taxes, or you could be exposed to the state estate tax without being exposed to the federal tax. This is because the state-level estate tax exclusions are often lower than the federal exclusion of $5.34 million.
Our firm practices in the State of Ohio. There was a state-level estate tax here in Ohio prior to 2013. On January 1, 2013, the tax was repealed, and as a result residents of Ohio are no longer faced with the prospect of paying a state-level estate tax.
Inheritance Tax in Cincinnati
There are those who assume that an inheritance tax is the same thing as an estate tax. In fact, these are two different forms of taxation.
An estate tax is imposed on the entirety of the taxable portion of an estate and is paid by the estate itself. An inheritance tax is levied on each respective transfer to inheritors who are not exempt from the tax, where the inheritors actually pay the tax themselves.
There is no federal inheritance tax to contend with, but there are a handful of states in the union that have state-level inheritance taxes. We do not have an inheritance tax in the State of Ohio.
In the states that do have an inheritance tax, very close relatives such as spouses, descendants, and parents are typically exempt from the tax.
For your information, the states that impose an inheritance tax are Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Residents of Maryland and New Jersey get the proverbial double whammy. These states impose both a state-level inheritance tax and a state-level estate tax.
When you digest all of this information, you see that postmortem asset transfers will not be subject to taxation in the state of Ohio unless the assets in question exceed $5.34 million. This is because the federal estate tax is the only transfer tax that is applicable to Ohio residents.
Of course, there is the matter of out-of-state holdings. Assets, such as real property, that you own in a state that imposes a state-level estate tax or inheritance tax may be subject to state-level death levies.
Tax Efficiency Consultation
If you have concerns about death taxes, our firm can help. We offer free wealth preservation consultations to people here in the greater Cincinnati area. To request an appointment, send us a message through our contact page.