When planning your estate or handling the affairs of a loved one who has passed away, understanding tax implications is crucial. While Ohio eliminated its estate tax in 2013, there are still important considerations for Ohio residents regarding both estate and inheritance taxes. Let’s explore the key differences and what they mean for you.
Understanding the Fundamental Difference
Estate planning involves preparing to leave a legacy after you’re gone, and understanding tax implications is critical. While both estate taxes and inheritance taxes relate to transferring wealth after someone passes, they differ significantly in how and when they’re applied.
The estate tax is a tax on the total value of your assets at your passing before your beneficiaries receive any distributions. Your estate, not your beneficiaries, is responsible for paying this tax before any assets are distributed.
Inheritance tax, on the other hand, is a tax on the assets your beneficiaries receive from your estate. Unlike estate tax, your beneficiaries, rather than your estate, are responsible for paying inheritance tax.
This distinction is important because it affects who bears the tax burden and when the tax is paid in the process of transferring assets.
Ohio’s Current Estate and Inheritance Tax Status
Good news for Ohio residents: Ohio estate taxes and inheritance taxes were eliminated in 2013 when the state passed a law abolishing these taxes. This means if you’re a resident of Ohio, your estate won’t be subject to state-level estate taxes, and your beneficiaries won’t face Ohio inheritance taxes when they receive their inheritance.
Ohio is one of 38 states that doesn’t tax estates, regardless of size. This makes Ohio an attractive state for retirees and those with substantial assets who are concerned about estate planning.
Federal Estate Tax Still Applies
While Ohio doesn’t impose estate taxes, you may still owe estate tax to the federal government. The federal estate tax kicks in at $13.99 million for 2025, up from $13.61 million for deaths in 2024.
This tax is portable for married couples. This means that with the right legal steps, a married couple’s estate won’t have to pay federal estate tax on up to $27.98 million when both spouses die as of 2025.
Federal estate tax rates are progressive, ranging from 18% for smaller taxable estates to 40% for the largest estates. Proper planning is essential if your estate approaches these thresholds.
Interstate Inheritance Tax Considerations
Even though Ohio doesn’t have an inheritance tax, an Ohio resident may incur an inheritance tax under certain circumstances if they inherit money from a resident of one of these six states that levy an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
When an Ohio resident inherits property from a resident of one of the six states that have an inheritance tax, that state will impose an inheritance tax on the Ohio resident. An estate tax would not be levied.
This is an important consideration if you have family members or are named as a beneficiary in a will of someone living in one of these states.
Retirement Accounts and Other Tax Considerations
While an Ohio estate tax is not a concern, there are other taxes that may be levied when an Ohio resident dies. Retirement accounts held by an Ohio resident are an asset that is subject to income tax. The beneficiary of an IRA or a 401(K) account will have to pay income tax on money they withdraw.
Some of these plans may have after-tax contributions, and these would not be taxed upon withdrawal. Withdrawal rules are complex and they are different for surviving spouses than for other beneficiaries.
Roth plans are different from the 401(K) and IRA plans in that these funds have already been taxed. However, the beneficiary may incur an income tax under certain circumstances – this should be discussed with an estate attorney.
Estate Planning Strategies
You can reduce estate taxes in a few ways. Speaking with a tax professional can help determine the right option for you. Some common strategies include:
Federal Estate Tax Exemption: The current exemption allows you to transfer significant wealth without taxes.
Lifetime Gifts: Gifting assets during your lifetime can reduce the size of your taxable estate (though limits apply).
Life Insurance: A life insurance death benefit can provide liquidity to pay estate taxes, helping save other assets for your beneficiaries.
Trusts: Certain trusts can help protect your assets from estate taxes.
Charitable Giving: Donating to qualified charities can help reduce your taxable estate and provide tax benefits.
Why Professional Guidance Matters
Having a legal team that understands the fine print details about estate planning is a smart move. Whether your concern is taxation, establishment of trusts, Will writing, or anything else regarding your estate, it makes sense to speak with an attorney. You can draft all of your estate documentation at the same time, which can save you considerable time and expense.
Preparing these legal documents at once will give you the chance to establish your estate in such way that all elements work in tandem. Your Will and your durable power of attorney have a fair amount of overlap, for example. And the forms which establish your trust(s) have a good amount of legal language in common with the other two as well.
Take Action Now to Protect Your Legacy
While Ohio’s tax environment is favorable for estate planning, the complexity of federal estate taxes and potential interstate inheritance tax issues means professional guidance is invaluable.
Our experienced estate planning attorneys can help you navigate these complexities, ensure your assets are protected, and minimize potential tax burdens for both your estate and your beneficiaries.
Don’t leave your legacy to chance. Contact our office today to schedule a consultation and begin creating a comprehensive estate plan that protects what you’ve worked so hard to build. We would be happy to speak with you about your estate plans and the legal protections you can put in place for your family and other loved ones.
For more information about estate planning in Ohio, visit the Ohio State Bar Association at https://www.ohiobar.org/for-the-public/resources/law-facts/law-facts-estate-planning/ or the Ohio Department of Taxation at https://tax.ohio.gov/business/ohio-business-taxes/estate.
