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How to Avoid and Reduce Inheritance Taxes in Ohio

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Ohio is one of the few states that  accesses a state inheritance tax on its residents at passing.   This tax is in addition to any Federal estate taxes that might be due and is enforced once an estate reaches countable assets of $338,333.

It is not uncommon for estates to owe tens of thousands of dollars or more in taxes that could have been otherwise avoided with advanced planning.

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

Countable And Non-Countable Assets

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.

You do not need to take our word for it – I encourage you to read the answers to questions 9, 10, and 11 on Ohio’s government tax website.   There,  it clearly explains the distinction between various asset classes.   It is important to note that almost all assets are counted as part of an estate’s gross value.

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