The answer to this question is variable depending upon the extent of your resources. First, you should understand the fact inheritances are not looked upon as taxable income.
When it comes to capital gains taxes, inherited appreciated assets get a step up in basis. This means that an inheritor does not have to pay capital gains taxes on assets that appreciated during the life of the decedent.
We have a federal estate tax in the United States that could put a major dent in your legacy, because it carries a 40% top rate. The exclusion is adjusted annually to account for inflation, but it is in excess of $11 million. This is the amount that can be transferred before the tax would become applicable.
There is an unlimited marital deduction that allows you to transfer unlimited assets to your spouse free of taxation. However, in order to use this deduction, your spouse must be an American citizen.
In legal/tax parlance, this is the matter of portability, which is the ability of a survivor to use their deceased spouse’s exclusion. The estate tax exclusion has been portable between spouses since 2011.
This used to be possible shortly after the estate tax was enacted in 1916, but the gift tax was put into place to close this loophole in 1924. It was repealed in 1926, but the gift tax return for good in 1932.
The federal gift tax is unified with the estate tax, so the exclusion applies to gifts that you give during your life along with the estate that will be transferred after you pass away.
Yes, some states impose their own estate taxes, but they are in the minority. Here in Ohio where we practice law, there was a state level estate tax, but it was repealed in 2013.
Many people make this assumption, but in fact, they are two different types of taxes. As we have stated, an estate tax is applied on the entirety of the taxable portion of an estate before it is transferred to the heirs.
An inheritance tax is applicable on each individual transfer, so there can be multiple impositions of this tax when one estate is being administered. Fortunately, you do not have to be concerned about an inheritance tax if you live in Ohio.
There is no federal inheritance tax, and just six states have state-level inheritance taxes. The Buckeye State is not one of them, so people here are in the clear.
We Are Here to Help!
If you are exposed to the estate tax, there are steps that you can take to mitigate the damage. And of course, there are ideal estate planning solutions for those that are not in the financial stratosphere.
An attorney from our firm would be more than glad to gain an understanding of your unique situation and make the appropriate recommendations. If you decide to go forward, we will help you devise a custom crafted estate plan that is ideal for you and your family.
To schedule a consultation, give us a call at 513-721-1513. There is also a contact form on this website that you can use if you would prefer to send us a message.