Ohio Estate Tax

Even if the estate you’re handling isn’t large enough to owe federal estate tax, it might well owe Ohio a separate estate tax.  For 2012 deaths, estates with a total value of more than $338,333 are subject to the Ohio estate tax. This is the lowest estate tax exemption amount of any state. After 2012, however, the tax goes away—there will be no more Ohio estate tax as of January 1, 2013.

Which Estates Must File

If the gross estate of an Ohio resident has a value of more than $338,333, the executor must file a state estate tax return. (Federal estate tax returns are required only for estates of more than $5.12 million for 2012 deaths.) Deductions–for example, for items such as funeral expenses, attorney’s fees, medical expenses, and real estate taxes—may reduce the amount of the taxable estate, reducing or even eliminating the amount of tax due.

It’s not just state residents who may owe Ohio estate tax. The estate of someone who was not a resident may also need to file an Ohio estate tax return, if the person owned valuable Ohio real estate or kept other tangible assets in the state.

Adding Up the Gross Estate

To determine whether or not an Ohio estate tax return is required, add up the value of the deceased person’s gross estate. Be sure to include:

• Real estate in Ohio
• Bank accounts, certificates of deposit, and investment accounts, including those for which a payable-on-death beneficiary was named
• Vehicles and other personal property kept in the state
• Proceeds from life insurance policies on the deceased person’s life, unless that person didn’t own the policy
• Retirement account funds
• Business interests (sole proprietorship, limited liability company, or small corporation)

If any assets were owned with someone else, count only the value of the deceased person’s interest. For example, if the deceased person owned a house with her husband, include half of its value. If, however, property was owned in joint tenancy with someone else, then include the total value except for funds that the other person contributed.

Also include these assets:

• Taxable gifts made during life. If the deceased person made taxable gifts (more than the annual exclusion amount, which is currently $13,000 per year per recipient), then add the taxable amount of those gifts to the value of the estate.
• Some transfers made fewer than three years before death. If the deceased person transferred a life insurance policy to an irrevocable life insurance trust within three years of death, you must include the value of the policy in the estate.
• Assets held in a trust. The value of assets the deceased person held in a revocable living trust or other trusts the deceased person controlled is included in the taxable estate.

Ohio Estate Tax Rates

The Ohio estate tax rate is far below the federal rate. For amounts over $338,333 up to $500,000, the rate is six percent; for amounts above $500,000, the rate is seven percent.

No ‘Portability’ for Ohio Spouses

Federal law currently allows spouses to share their individual federal estate tax exemptions. If the first spouse to die doesn’t use up all of his or her entire $5 million federal estate tax exemption, then after the second spouse dies, his or her estate can use the rest of the first spouse’s exemption amount. This exemption “portability” provision is set to expire at the end of 2012, but it may be extended by Congress.

Spouses cannot share their individual estate tax exemptions for Ohio estate tax purposes.

Property Left to a Surviving Spouse

Property left to a surviving spouse is exempt from state estate tax, no matter what the amount.

Filing the Tax Return

The Ohio estate tax return is due 15 months after the date of death. (The official due date is nine months after death, but there’s an automatic six-month extension.) Tax payments, however, are due nine months after death; if they’re not paid then, interest starts to accrue.

The return (ET Form 2), a filing notice (ET Form 5) and certificate of estate tax (ET Form 22) are filed with the probate court in the county where the deceased person lived. Taxes are paid at the county auditor’s office.

You can download Ohio estate tax forms and instructions are at the website of the state department of taxation.

Getting Expert Advice

Filing an estate tax return, either with the state or the IRS, requires the help of an expert. Both state and federal returns are long and complicated. Hire a lawyer or CPA who has lots of recent experience with Ohio estate tax returns and procedures; the fee will probably be several thousand dollars, but it will be worth it.