Formulating your estate plan requires that you understand every potential outcome affecting your assets. In doing so, you quickly realize that administering an estate can be costly. Fortunately, you can implement plans to reduce potential expenses, such as paying off outstanding debts or even structuring your estate so as to avoid probate.
Taxes, however, seem like an inevitability, and for the longest time, they were just that (hence the phrase “death and taxes”). Yet recent years have seen a massive shift in the structure of the estate tax system. This leads to the question of whether or not you can limit (or even avoid) an estate tax liability.
The federal government offers an estate tax exemption. Lawmakers adjust the exemption threshold annually (for 2021, the threshold amount is $11.7 million). As long as the total taxable value of your estate comes in under the exemption amount, it will not be subject to tax.
Estate tax portability lets you combine your estate tax benefits with your spouse. Taking advantage of another tax benefit (the unlimited marital deduction) lets you effectively double your combined estate tax exemption. Should you leave your entire estate to your spouse, that amount passes tax-free thanks to the unlimited marital deduction. This preserves your entire $11.7 million exemption, which your spouse may then claim by filing electing portability in an estate tax return filed the same fiscal year as your death. This increases their exemption to $23.4 million.
Until recently, Ohio also imposed an estate tax on local residents. However, according to the state’s Department of Taxation, local lawmakers repealed the estate tax in 2013. The state does also not impose an inheritance tax, freeing your beneficiaries from any locally imposed liabilities on assets they inherit.