One of the main purposes of estate planning is to ensure you provide for your spouse, children or other family members after you pass away. Your estate planning documents, therefore, should be prepared with a mind toward minimizing taxes that reduce the amount of money and property you are able to leave to loved ones. If you fail to consider the effects of federal and state estate taxes on your estate plan, you could end up leaving a lot less to family than you hoped.
Ohio Estate Tax
Last year, Gov. John Kasich signed a law that eliminates Ohio estate taxes starting January 1, 2013. Until then, a $338,333 estate tax exemption applies, protecting that amount of your estate from state taxes. Estates with net taxable values above $338,333, up to $500,000, are subject to a tax at the rate of 6 percent; a 7 percent rate applies to those with a net taxable value over $500,000.
Federal Estate Tax
Under federal tax law, those who die in 2012 with estates valued at less than $5.12 million will avoid federal estate taxes. A tax rate of 35 percent, however, applies to estates in excess of $5.12 million. The current federal rules apply through the end of 2012 but will expire in 2013; and if the rules are not extended, the exemption will drop to $1 million and the tax rate will jump to a maximum of 55 percent.
Reduce Your Estate
If your aim is to maximize the wealth you pass on, several tax minimization strategies can help. According to Smart Money, strategies for reducing your taxable estate include:
- Making annual gifts of up to $13,000 to relatives and loved ones
- Paying college tuition expenses or medical bills for relatives and loved ones
- Giving away appreciating assets
An additional strategy to reduce the value of your taxable estate and take advantage of the exemption includes planning for charitable gifts upon your death. This allows you to support charities while avoiding estate taxes.
Individuals should work closely with an experienced and knowledgeable estate planning attorney to minimize taxes, preserve their legacy and provide for family.