TAXES INVOLVED IN AN ESTATE
There are many misconceptions regarding the taxes that are involved in an estate. Here is a brief summary of the taxes that may be involved.
FEDERAL ESTATE TAX
Most relatively simple estates will face no Federal Estate Tax and do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $5,490,000 in 2017. This is essentially doubled when a spouse is involved with the concept of "portability" The portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, to their surviving spouse. This provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.
OHIO ESTATE TAX
The state of Ohio repealed its estate tax effective January 1, 2013. As a result, there is no estate tax on estates of individuals with a date of death on or after January 1, 2013.
With the high exemption level of the Federal Estate Tax and the repeal of the Ohio Estate tax, most Ohio estates are left facing only an income tax bill. However, this can be substantial if there has been a failure to plan. Many people fail to recognize that their retirement plans consist of a high percentage of assets that are subject to income tax. If this is coupled with a failure to either properly designate the beneficiaries, or poor decision making by the beneficiary, these assets may be subject to an accelerated payment of the income tax. The top marginal income tax rate is currently in excess of 39%. So, for example, if there were a $500,000 IRA that was mismanaged, the taxes would be in excess of $200,000.
This huge income tax bill can be managed, reduced, or better yet, deferred with skillfully advised estate planning. Ask us about our IRA Trust and stretching out your IRA.