Ohio Estate Tax Alert


Ohio is currently one of the few states which still have a state estate tax (Michigan and Florida, for example, do not).

As the federal estate tax exemption has gradually increased since 2001 (to $3.5 million in 2009, but reverting to $1 million in 2011 unless Congress acts otherwise), fewer individuals have been subject to federal estate tax. However, Ohio estate tax affects far more individuals than federal estate tax, because the exemption is only $338,333 (the lowest of any state in the U.S.) After the exemption, the tax rate is 6% below $500,000 and 7% thereafter, resulting in a tax of $9,700 on the first $500,000 plus 7% of the amount in excess of $500,000. Essentially all assets except life insurance payable to a named beneficiary are included in the Ohio taxable estate.

For a married couple, there will generally be no Ohio estate tax at the first death, since Ohio law provides the same unlimited marital deduction as federal law. Traditionally, a credit shelter trust has been used only to save federal estate tax at the second death. However, some couples may choose to use such a trust to reduce Ohio estate tax by $23,683 (7% of $338,333) or more at the second death. In many cases, a disclaimer trust will provide welcome flexibility and permit the surviving spouse to decide whether the potential Ohio estate tax savings are worth the cost (e.g., trust tax returns) of administering a credit shelter trust during the surviving spouse's lifetime.

Given the above, Ohio residents should consider both federal estate tax and Ohio estate tax when planning their estates.