There are currently 17 states that collect an estate tax aka death tax. Ohio is one of them, and also has the lowest minimum taxable value in the country.
When an Ohioan dies, his estate worth between $338,333.00 and $500,000.00 is taxed at $13,900 plus 6% of the excess over $338,333. If the estate is worth over $500 k, the tax is $23,600 plus 7% of the excess over $500 k, so at $500 k and 25 cents, the decedent is charged almost $10 k more in taxes.
Think you don’t have to worry about this? That may not be so.
The death tax includes all assets. In addition to the money in your bank account(s), the assessed values of your house, car, jewelry, furniture, stocks and bonds, life insurance, essentially everything you own are included.
The assessed value of your property has nothing to do with the amount paid for it or what it was worth when purchased. The tax applies to current value of the property upon the death of the owner.
This adds up quickly and provides an incentive to move out of state before you die. Not all seniors go to Florida for the weather.
Small business owners and family farms are almost certain to be affected by the death tax. Far too often must the survivors sell the family business or farm to be able to pay the tax assessed.
The solution may seem to be handing over the business or farm and all the assets before dying, but this makes the estate subject to federal gift taxes which are then also added to the death tax upon dying.
This property has already been taxed and re-taxed through income tax, property tax, sales tax, capital gains tax, and a multitude of other taxes, yet they are taxed again at death at full market value.
This is one reason businesses are reluctant to locate in Ohio, even though they can buy property here for less than they can rent it in other states.
Take the example of the estate of John Rebhan II who owned and operated Warren Fabricating and Machining Corp. and Ohio Steel Sheet & Plate until his death in 2008. Since this time, there has been a court battle between Warren and Vienna over the $3.9 million local share of estate taxes. Meanwhile, the family must sell off the property, including Rebhan’s beloved antiques.
This is in addition to federal estate and gift taxes.
According to the IRS, “The Estate Tax is a tax on your right to transfer property at your death.”
In addition, if the inheritance is going to a grandchild, it is also subject to the generation skipping transfer tax.
Fortunately incoming Governor John Kasich, Ohio House Speaker Bill Bachelder and Ohio Treasurer John Mandel have pledged to eliminate Ohio’s death tax. Kasich further pledged to “phase out the [state] income tax.”
Good things may be coming.