How Proper Tax Planning Can Eliminate or Reduce Ohio State and Federal Estate Taxes

Cleveland tax planning attorneys understand which tax strategies and estate documents can help minimize death taxes

When individuals in Ohio die, their estates are typically responsible for two types of taxes – the Ohio estate tax and the United States estate tax. Whether an estate is liable to pay either of these estate taxes depends on a variety of issues. What was the value of the estate? Who owned the estate assets? Did the assets pass through the estate? If estate assets are held for a long period of time, the estate may also be required to pay fiduciary income taxes on any income the estate generates.

Benjamin Franklin famously said there are only two certainties in life – death and taxes. We, at The Gertsburg Licata, understand that while income taxes may be a certainty, death taxes don’t always have to be a sure thing. For example, both the Ohio and federal estate tax laws exempt large amounts of assets. Ohio estate taxes don’t begin until the estate value is more than $338,333. Many taxes can be lessened through proper business or family planning. Trust documents are often used to reduce taxes. Our Cleveland tax lawyers explore all Ohio and federal possibilities for reducing taxes. We explain which ones are right for each client’s circumstances.

Trust documents used for tax management

There are many types of trusts that our tax attorneys consider for our clients. Which trust is used, if any, depends on the overall estate planning needs of the Ohio resident. A few of the more common types of trusts that can be used to reduce or avoid federal and/or Ohio estate taxes are:

  • Pourover trust. This trust, also called a standby trust, is initially unfunded. It is created along with a will. The will designates that some or all of the decedent’s assets will be transferred to the trust when the person dies. Married couples use this trust to avoid paying the death taxes on behalf of the first spouse to die.
  • Generation skipping or dynasty trust. This kind of trust is written into a will. The person who crafts the will designates that his/her children will not get the assets. Instead, the trust income and assets are used on behalf of the person’s grandchildren.
  • Personal injury trust.When someone is injured and receives a large award or settlement, the funds can be placed in a personal injury trust so that the injured person’s medical bills can be paid directly from the trust.

There are many other types of tax avoidance or tax reduction trusts. While trust documents can help avoid or reduce death taxes, the terms of the trust do have to be met – which means the funds generally cannot be used for purposes other than those set forth in the trust – even if an emergency occurs.

Gifting of assets before death

Our lawyers explain yearly and lifetime gift strategies for reducing taxes. We explain that under current federal law, gift recipients are not liable for annual gifts of $14,000 or less. Gifting assets properly can also reduce the overall value of an estate, thus reducing the likelihood that an estate tax will be due. There is currently a $5.45 million federal estate/gift tax exemption, so it pays to reduce the estate value to an amount less than that exemption.

Many of our clients make charitable contributions for two reasons. The first is because they want to help the charity. The second is because yearly charitable contributions are part and parcel of gift tax planning. We also explore how irrevocable life insurance trusts can be used as part of a gift tax strategy.

Additional tax planning strategies

Before beginning any tax planning analysis, our Cleveland tax attorneys review our client’s current financial situation, any immediate needs such as providing for a spouse with Alzheimer’s or other disability, long-term personal and business goals, medical issues, and family concerns.
Often, there are tax-planning strategies that do not involve trusts that our firm or the tax lawyers we work with will recommend. Some non-trust tax planning considerations are:

  • Gifting of assets before death
  • Reviewing relevant business documents such as partnership agreements and corporate bylaws
  • Retitling of assets
  • Reviewing which deductions may be allowed
  • Proper will drafting
  • Reviewing how the value of the assets will be determined
  • Charitable giving

Our lawyers also review the fiduciary income tax laws. In some cases, holding onto the assets makes good financial sense. In other cases, selling or transferring them may be the better choice. We review both individual and business fiduciary income tax returns.

Consult with an experienced Cleveland tax planning attorney to ensure that you utilize the best strategies and documents.

The sooner you review your estate with an experienced tax planning attorney, the more and better options you will have to plan for the future, provide for your family and business, and still be able cut or even eliminate severe death tax consequences. At Gertsburg Licata, we balance your estate goals with your desire to maximize the value of your estate by reducing the amount of estate taxes that are due. We help our clients strategize, choose, properly draft the right estate documents. For help now, call us at 216-573-6000 or complete our contact form for a professional review of your estate plan.