Federal Estate Tax How Much Passes Tax Free in Ohio?

“In the state of Ohio we no longer have a state level estate tax, though there are

states that still do have death taxes on the state level.”

Zimmer Law Firm, LLC (513) 721-1513 866.799.4050 (toll free) • ZimmerLawFirm.com

In the state of Ohio we no longer have a state level estate tax, though there are states

that still do have death taxes on the state level. This is something to take into

consideration if you are considering relocation for your retirement years.

However, we are certainly subject to the federal estate tax as Ohio residents. This tax

can play havoc with your financial legacy because it carries a very high 40 percent

maximum rate.

The good news is that your heirs will not be required to part with $.40 out of every

dollar that they receive. This is because of the fact that there is a federal estate tax

exclusion. A certain amount of money can be passed along before the estate tax is

applied to the asset transfers.

In 2013 the amount of the federal estate tax exclusion is $5.25 million. You may

remember the way that the so-called fiscal cliff situation was dominating the news

cycles toward the end of 2012. What awaited us at the bottom of the fiscal cliff? The

destructive forces were automatic tax increases and spending cuts.

One of these automatic tax increases would have impacted the federal estate tax.

Under the laws as they existed throughout virtually all of 2012 the estate tax rate would

have gone up from 35 percent to 55 percent in 2013, and the exclusion would have gone

down from $5.12 million to just $1 million.

On New Year's Eve and New Year's Day the legislators came to an agreement, and it

was signed into law by the president. This compromise allowed us to step back from

the fiscal cliff. The terms are contained within a piece of legislation that has been titled

the American Taxpayer Relief Act of 2012.

The parameters of the federal estate tax did not change very much after the passage of

this measure. This year we have a $5.25 million exclusion, and it can be adjusted

annually for inflation. The maximum rate of the estate tax went up from 35 percent to

40 percent.

Other Taxes on Asset Transfers

When you hear about the federal estate tax you may decide that you will give gifts to

the people who are on your inheritance list while you are still alive to get around the

death levy. This is something that was done by John D. Rockefeller after the estate tax

was enacted in 1916.

The federal government was not particularly pleased with this type of thing, because

for all intents and purposes it rendered the estate tax impotent. As a result, a gift tax

was imposed eight years after the installation of the federal estate tax.

We have an annual gift tax exclusion. This is one of the reasons why most people never

pay taxes on gifts that they give. The amount of this exclusion in 2013 is $14,000. There

is no limit to the number of

people that you can give

$14,000 or less to in a tax-free

manner in a given year.

This tax on gifts is unified with

the estate tax. The $5.25

million that we mentioned

previously encompasses

taxable gifts and the value of

your estate. As a result, you

could give a tax-free gift to a particular individual that exceeds $14,000 during a tax

year. But, you would be using a portion of your unified $5.25 million exclusion to do

this.

In addition to the gift tax and the federal estate tax we also have a generation-skipping

transfer tax. This tax is imposed on asset transfers to people 37.5 years younger than

you who are not members of your family. It can also be imposed on family members

who are more than one generation younger than you. The $5.25 million exclusion

applies to the generation-skipping transfer tax as well, and it too carries a 40 percent

maximum rate.

Transfer Taxes and Married Couples

When you are trying to

determine how much

you can pass on to

others free of estate

and gift taxes you

should understand

some things about

transfer taxes and

married couples. There

is an unlimited marital

deduction that applies

to gifts that you give

while you are living,

and bequests that you

may leave to your spouse after you pass away. This allows you to transfer any sum of

money to your spouse free of taxation.

This is assuming your spouse is a citizen of the United States. If you are married to a

citizen of another country you cannot utilize the unlimited marital deduction.

Why would this be the case? The short answer is that the tax man wants his cut

eventually. If you pass away and leave everything to your spouse in a tax-free manner,

what is he or she going to do with it? Your spouse will be leaving these assets behind to

his or her heirs, and once again the estate tax will be a factor.

On the other hand, if your spouse was a citizen of another country he or she could

simply head back there with his or her inheritance if the marital deduction was available

to noncitizen spouses. If your surviving spouse lived out his or her life in that country

the United States Internal Revenue Service may never see a penny after he or she

passes away.

Each American taxpayer is entitled to the $5.25 million unified exclusion. This means

that a married couple would have a total of $10.5 million if they combined their

respective exclusions. This raises

an interesting question: what

happens to your exclusion when

you die if your spouse is still

living?

The answer is that your surviving

spouse would be able to use the

exclusion that you were entitled

to as well as his or her own because the estate tax exclusion is portable. However, you

have to take steps to opt in to portability. This is done by filing Internal Revenue Service

Form 706 within nine months of the passing of the decedent. If you need extra time you

could apply for a six-month extension.

Conclusion

You can transfer as much as $5.25 million to people other than your spouse free of

transfer taxes. Any transfers that exceed this amount would potentially be subject to a

40 percent federal levy.

There are legal techniques that can be utilized to keep your exposure to a minimum

even if your assets exceed $5.25 million in value. The wise course of action is to discuss

your options with a licensed estate planning attorney so that you can take the

appropriate steps to preserve your wealth.

References

Internal Revenue Service

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-Gift-

Taxes

Forbes

http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-

estate-and-gift-tax-explained/

About the Author

Barry Zimmer

Barry H. Zimmer founded THE ZIMMER LAW FIRM in June 1993, to practice in the areas of estate planning, estate administration, and business succession planning. His goal was and continues to be helping clients understand and de-mystify the often confusing world of estate planning in an ever-changing society, and to implement effective estate planning with minimal effort and time investment. The firm works from the belief that planning should always be driven by purpose. As a result, there are no “canned” or pre-set planning solutions. Instead, Zimmer helps clients identify their goals first and then builds estate and business plans based on that understanding. Barry has been in private practice since receiving his law degree from

the University of Cincinnati College of Law in 1979. He earned his Bachelor of Arts Degree from U.C. with Honors, Magna Cum Laude and Phi Beta Kappa, in 1976. He was profiled in the 1990-1991 edition of Who’s Who in American Law for contribution to the betterment of contemporary society, and has lectured numerous times on legal topics, and authored several articles and Special Reports on estate planning. He is a former guest columnist on Simply Money, on 91.7 FM, WVXU. He makes occasional guest appearances on radio about estate planning topics, and has been quoted in newspaper articles and columns on estate planning matters. In Mr. Zimmer’s perspective, excellence in implementing trust-based estate plans is but one aspect of his responsibility to clients. Providing reliable guidance and service to families of clients who pass away is just as critical as sound planning at the front end. The firm is very active in settling trusts of all complexity and sizes, and handling probate cases and guardianship proceedings. Zimmer and his staff have successfully handled hundreds of trust estate cases, and are experienced in settling and distributing a wide variety of estate assets to heirs. The Zimmer Law Firm 9825 Kenwood Road, Suite 201 Cincinnati, OH 45242 Phone: (513) 721-1513 Fax: (513) 287-8623 Website: www.zimmerlawfirm.com