Will you owe estate taxes?

| Feb 25, 2021 | Uncategorized

You work very hard throughout your adult life with the express goal of accumulating assets to one day pass on to your spouse, children and other important people in your life. This makes the thought of potentially losing any portion of those assets to estate taxes absolutely disheartening.

Yet is this something you should even have to worry about? Ohio does not impose an estate tax on local residents (nor does it levy an inheritance tax against your beneficiaries). This leaves the only potential tax liability you may face the one coming from the federal level. With careful planning, you even be able to avoid that, as well.

Understanding the federal estate tax threshold

First and foremost, however, you should understand if your estate will even face federal taxes. The federal government sets an annual threshold as part of its estate tax exemption. If the total taxable value of your estate comes in under that amount, it will not be subject to tax. According to the Internal Revenue Service, the threshold amount for 2021 is $11.7 million.

Taking advantage of estate tax portability

You may work with your spouse to extend that amount even further. Portability is the process through which eligible parties can share tax benefits. In terms of estate taxes, one can claim a deceased spouse’s unused exemption amount. You can use this benefit to effectively protect up to $23.4 million from estate taxes.

To do this, you must leave the entirety of your estate to your spouse. This allows it to pass without being subject to tax (thanks to the unlimited marital deduction), thus preserving your entire estate tax exemption. Your spouse then claims your unused exemption by filing an estate tax return (within nine months of your death) electing portability.