Ohio Inheritance Laws… What You Should Know For Your Taxes

Intestate Succession in Ohio

Whether you’re planning for the future and how you’d like your assets dispersed among your survivors, or you’re dealing with an inheritance situation right now, you probably have some questions as to how Ohio’s inheritance laws work, especially in terms of taxes. Inheritance estate taxes are a legitimate concern for individuals with assets they wish to pass on to family members or other beneficiaries.

While many are aware that Ohio eliminated estate and inheritance taxes in 2013, an Ohio resident may still incur an inheritance tax under certain circumstances, such as if they inherit money from an individual who lived in one of the six states that still impose inheritance taxes. As of this writing, the following states are included: Iowa, Kentucky, Pennsylvania, Maryland, New Jersey, and Nebraska. Note that Iowa is scheduled to eliminate its estate tax in 2025.

What Is the Difference Between Estate Tax and Inheritance Tax?

An estate tax is applied to a property or other assets when the original owner dies in a state with an estate tax. Similarly, inheritance tax appears when someone inherits property or other assets from a resident of a state with an inheritance tax. For example, suppose an Ohio resident inherits property from a person in Pennsylvania. In that case, one of the six states that have an inheritance tax, the state of Pennsylvania, will impose an inheritance tax on the Ohio resident. However, Pennsylvania does not have an estate tax, so that would not be levied.

For example, consider an Ohio resident who inherits a retirement account from someone from a state with an inheritance tax, such as Nebraska. The beneficiary living in Ohio will have to pay that inheritance tax to Nebraska, where the deceased lived. An Ohio estate tax would not be levied.

What Taxes Should an Ohio Resident Be Aware Of?

While Ohio does not have an estate tax, other taxes may apply after an Ohio resident passes away. For instance, any retirement accounts held by a deceased Ohio resident are considered assets and would become subject to income tax. Likewise, the beneficiary of a deceased’s IRA or a 401(K) account will be required to pay income tax for the money they withdraw.

Some IRA and 401(K) plans may have after-tax contributions. These would not be taxed upon withdrawal. However, withdrawal rules can sometimes become complicated and differ when applied to surviving spouses compared to other beneficiaries. In this situation, it is advisable to consult a qualified estate attorney to help navigate withdrawals and associated tax implications.

Roth plans differ from the IRA and 401(K) plans in that Roth funds have already been taxed. Despite this, under certain circumstances, a beneficiary might still incur an income tax on the inherited asset. This is another situation where it is highly recommended that you check with an experienced estate attorney to discuss which taxes apply and which do not.

It’s essential to note that although Ohio does not have an estate or inheritance tax, Ohio residents may have family members or other potential beneficiaries residing in states that do levy an inheritance tax. Likewise, an Ohio resident who inherits an out-of-state retirement account may be subject to inheritance tax, as well as state and federal income taxes.

In any situation where the tax laws become confusing, your best bet is to consult with an estate attorney about which assets are subject to which taxes and from which sources. When planning your estate, you’ll want to save your survivors from needless worry and expense.

What About Federal Estate Taxes?

Good news. Estates worth less than $11.18 million do not have to pay federal estate taxes.

Planning Your Estate To Save Time and Money

Having an experienced legal team that understands all the intricacies of estate planning is your best move. Whether you’re looking to untangle issues surrounding taxation, creation of trusts, writing wills, or anything else involved with estate planning, you’re going to want to speak with a qualified estate attorney.

When you do, take this time to draft all of your estate documentation simultaneously. This will save you considerable time and expense in the long run.

Setting up your legal documents ahead of time will enable you to establish your estate in a way that ensures everything works in tandem. Establishing your will and appointing an executor early can help eliminate confusion later on. If you’re looking to establish trusts to support people or groups after you’ve gone, you can get all the legal language and other concerns sorted out, thus providing you with peace of mind about the future.

To learn more, don’t hesitate to give Heban, Murphree & Lewandowski, LLC a call, (419) 662-3100. Our experienced legal teams can answer any question you may have about estate planning, inheritance taxes, setting up wills and trusts, and estate administration. They can help get you started right away on planning for the future.