|
|
|
|
| |
|
Will My Estate Be Subject To Estate Taxes?
|
|
|
| |
It was Ben Franklin who said, "but in the world nothing can be said to be certain except death and taxes." Unfortunately, even though you have paid taxes your entire life, when you die, there can be additional taxes owed on your estate before it passes to your loved ones. Both Ohio and the federal government impose estate taxes, which are generally due within nine months after death.
In Ohio, the Ohio estate tax rates range from 2% to 7%. However, there is an Ohio estate tax credit of $13,900, and therefore, no Ohio estate tax is incurred by estates of $338,333 or less. For estates valued over $338,333, but less than $500,000, after the tax credit is taken, the Ohio estate tax equals 6% of the amount over $338,333 but less than $500,000, and 7% on the amount over $500,000. Although these rates are not onerous, proper planning can reduce Ohio estate tax.
Federal estate taxes can be substantial (ranging from 18-50%). However, in most cases, estates with less than $3,500,000 (for decedents dying after January 1, 2009) are exempt from this tax. (The exception to this is where an individual has already used his/her lifetime unified credit exemption). For estates valued in excess of $3,500,000, special planning can greatly reduce, if not eliminate, federal estate tax liability. For example, spouses can double this exemption amount to $7,000,000 by using certain types of trusts.
In valuing your estate, it is necessary to take into consideration all your assets, including but not limited to, bank accounts, stocks, business interests, insurance policies payable to others and to your estate, death benefits payable to your estate, and other pecuniary or property interests.
For the last couple of years, there has been, and continues to be, a great deal of uncertainty associated with the federal estate tax. Under the 2001 tax act, which currently governs federal estate taxes, the unified credit amounts were set as follows: (1) $1,500,000 for tax years 2004 and 2005, (2) $2,000,000 for tax years 2006, 2007, 2008, and (3) $3,500,000 for tax year 2009. The estate tax will be eliminated in tax year 2010, but, unless Congress takes action to make the elimination of the estate tax permanent, in tax year 2011, the exclusion amount will return to $1,000,000. Accordingly, we recommend estate tax planning for estates approaching or in excess of $1,000,000 until such time as Congress takes further action. Given the current economy and government spending, it is hard to imagine that some sort of action won’t be taken before the end of this year (2009) to prevent the elimination of the estate tax for year 2010.
Another important exemption from Ohio and federal estate taxes is the marital deduction. Under federal law, all property passing to a surviving spouse (if certain non restrictive requirements are met) qualifies as a deduction for federal estate tax purposes. Therefore, if all property passes outright to a surviving spouse, no matter how large the estate, there will be no federal estate tax. The property will, however, be taxed in the surviving spouse's estate, to the extent the surviving spouse's total estate exceeds $1,000,000 (see above as to tax rates for non-spouse transfers). Although this exemption represents a significant tax deferral device, it should not be viewed as a universal solution to paying estate taxes. Often, maximizing the use of the marital deduction will actually increase the total estate taxes paid by a married couple. Thus, careful planning is still required to maximize the deduction without incurring adverse results.
Ohio also has an unlimited marital deduction for assets and other benefits passing to the surviving spouse.
One of the primary differences between Federal and Ohio estate taxes, other than the rates and exclusion amounts, is that Ohio does not tax life insurance proceeds payable to anyone other than the decedent=s estate. Therefore, it is important to name primary and alternate beneficiaries for your life insurance policies in order to avoid having life insurance proceeds payable to your estate, and thus subjecting it to Ohio estate tax.
As mentioned earlier in this article, with careful and advanced planning, estate taxes can be greatly reduced and, in many situations, eliminated. Further, in an estate in which taxes are inevitable, steps can be taken to prepare for this, such as obtaining appropriate life insurance. Without proper planning, family businesses can often be caught off guard when a principal owner of the business dies and the largest asset is the decedent’s interest in the business. This can create a financial crisis which could even lead to the sale of the business to pay taxes, which is generally not the intent of the owner or the family.
At Hill Allison & DeWeese, LLC, we can guide you through the planning process to make sure that your estate does not pay more than necessary and we can also help you to plan for the payment of taxes when they will be due so that assets, like a family business, can be preserved.
|
|
|
|
|
|
