How Taxation Affects Your Estate

When you’ve spent your entire life building up your wealth, the last thing you want is for your beneficiaries to have to pay taxes on their inheritance. Clients are often concerned about whether their hard-earned assets will be subject to estate or inheritance tax.

Fortunately, as of 2013, Ohio no longer takes its share of inheritance and estate taxes. However, there are certain circumstances in which beneficiaries may have tax obligations. This overview covers the most likely taxation scenarios.

Federal estate tax

If you have a particularly wealthy estate, federal estate taxes may apply. Currently, the federal government taxes estates over $12.06 million. That number rises to $12.92 million in 2023, and may change again in the future. If your estate’s total worth approaches these thresholds, James Bart Leonardi, LLC can help devise legal strategies to minimize the tax liability.

This tax is assessed on the assets’ fair market value at the time of death—not the value the assets had when they were first acquired. However, assets that pass to the surviving spouse are generally not subject to the estate tax. This is due to the unlimited marital deduction.

Inheritance taxes from other states

Six states currently have an inheritance tax. Unlike estate taxes, an inheritance tax is only levied against the amount the beneficiary inherits, rather than a tax on the entire estate. If you inherit assets from someone in Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania, you may be obligated to pay an inheritance tax.

Income tax and capital gains tax

Beneficiaries may be subject to income or capital gains tax, even if your estate doesn’t qualify for the federal estate tax. For example, retirement accounts like IRAs and 401(k) accounts must pay income tax on whatever money they withdraw. However, there are different rules for surviving spouses.

Finally, even if your assets are not subject to an estate or income tax, your heirs could be liable for capital gains tax on any subsequent earnings or income it produces.

Avoiding and minimizing tax liability

Working with James Bart Leonardi, LLC is a great way to avoid or minimize tax liability whenever possible. We help clients create a comprehensive estate plan, from avoiding probate and minimizing taxes, to assigning powers of attorney and creating advance healthcare directives. No matter the size of your estate, Bart Leonardi can explain your options and ensure that your wishes are carried out properly.

For more information about taxes and your estate plan, contact James Bart Leonardi, LLC today.

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