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Avoid and Reduce Inheritance Taxes in Ohio

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Editor’s Note:  As of 2013, Ohio non longer has an inheritance tax. Residents may still be subject to Federal Estate Taxes, however. It is also possible that Ohio residents could pay inheritance taxes on property and assets inherited from a deceased resident of another state.

Furthermore, we still see many of our large-estate clients using life insurance policies to assist with succession and business planning. The information below applied estates settled before 2013.

Countable And Uncountable Assets

If The Taxable Estate Is:  The Ohio  Inheritance Tax  Will Be:

Between $338,333 and $500,000 $13,900 plus 6% of  the excess over $338,333
Over $500,000 $23,600 plus 7% of  the excess over $500,000

Most assets count toward the $338K  minimum – assets such as real estate located in Ohio, vehicles, bank accounts, stocks and bonds, mutual funds, business interests, annuity accounts, and even the contents of your home.

Life Insurance Proceeds Are Not Taxable

The one asset class that is exempt when calculating an estate’s value is life insurance paid to a named beneficiary.  However, if the life policy is paid to the estate for any reason, then it would be counted and therefore taxable. It is important to regularly review existing policies for beneficiary designations.

When paid to a named beneficiary, life insurance policies can and will avoid the Ohio state inheritance tax. With this in mind, a select few  insurance companies have designed plans that can help reduce your countable estate.

Guaranteed Issue Life Insurance – 4% Growth

A common concern about life insurance is whether someone can qualify medically. If you are in good health, then purchasing a life contract is very easy at most ages.

The good news is that a guaranteed issue policy has recently been approved for those who are in poor health or who would prefer not to be medically underwritten. This life insurance policy requires no  underwriting and can be issued up to age 99.

It is a single premium life contract with an increasing death benefit that requires no monthly payments. A $99,000 thousand dollar deposit purchases $100,000 in  immediate death benefit. The death  benefit is guaranteed to grow by 4% each year. After year one, the $100,000 death benefit would grow to $104,000 and would increase by 4% each year thereafter.

Advantages Over Traditional Investments

This new life  insurance contract could be a very good fit for someone who is older or in below average health. It works somewhat like a fixed annuity in that it guarantees interest, except that the death benefit is not subject to income taxes and would not be counted toward the gross estate for Ohio inheritance tax purposes.

A properly designated  life policy offers distinct advantages over a certificate of deposit, annuity account,  mutual fund, or brokerage account in that it avoids both income and inheritance taxes for your heirs. And again, the death benefit increases by 4% each year which is superior to most other available fixed rate investments.

In summary, those who need to reduce their exposure to what has been deemed the “Ohio death tax” should consider a life insurance policy. You can purchase a single premium policy that is guaranteed to increase each year. Planning ahead will help you, your estate, and your heirs retain more of your accumulated wealth.

Contact us today to discuss your options.

Category: Life Insurance, Retirement Planning