Background

On June 30, 2011, Ohio Governor John Kasich signed legislation that repeals the Ohio Estate tax for decedents dying on or after January 1, 2013. This is a big change to Ohio law that will likely impact every Ohio resident, either directly or indirectly.

As far back as 1893 Ohio enacted a death tax, levying an inheritance tax on succession of property from a decedent's estate. In 1968 the inheritance tax was replaced with an Ohio estate tax. Over the last four and a half decades there have been various changes to exemption amounts and deductions. In 2011, the tax impacts any decedent with a taxable estate in excess of $338,000, and the maximum tax rate is 7%. While some believe it hits only the "wealthy," it is not hard to see the broad range of people it can affect, since owning a small life insurance policy and a house could easily put a decedent's estate over the limit.


Good or Bad?

Proponents of the new law believe it is good for Ohio small businesses owners, allowing them to build wealth in small businesses and pass the wealth on to family without fear of erosion of the value by the Ohio estate tax. Proponents also believe it is good for Ohio's population because it may keep older people from moving to places such as Florida, which does not tax estates, and establishing residency there.

On the flip side, many municipalities are wondering how they will make up for the revenue loss in their municipal budgets. About 80% of the Ohio estate tax, around $231 million last year, goes to cities or townships where the decedent was domiciled. This could be a major loss to some local governments. In order to continue to adequately provide local services, local governments will need to find new ways to generate, save, and spend their budget dollars.


What does this mean for the practitioner?

The repeal seems to be good news for those nearing retirement, who might feel compelled to establish residency in Florida or some other estate tax free state. Starting in 2013, those folks can remain residents of Ohio.

For married couples, it could present a planning opportunity. For those couples who currently have the traditional credit shelter trust, also known as the A/B Trust, the repeal will allow more flexibility. Starting in 2013, provisions of the B Trust, or Family Trust, can be more flexible, allowing for beneficiaries other than the surviving spouse, such as children or grandchildren. This, in turn, may allow planners to focus more on planning issues rather than traditional estate tax issues because the B trust will no longer need to qualify for the Ohio marital deduction.

For those new to practice, or in their middle years, don't let the Ohio estate tax repeal keep you from seeking estate planning. The threat of estate taxes often bring practitioners into planners' offices. However, estate tax is only one of a myriad of issues that typically need to be addressed. Whether single or married, it is critical to have an appropriate general durable power of attorney in place so someone can make financial moves for you if you are incapacitated. For married couples with children, it provides a great deal of peace of mind to name a guardian to care for children and provide a Trust for handling the money while children are still young. For any practitioner, it is important to have an exit plan in place in the event of full retirement, or if you decide to pursue a second career. Probate planning is a tool to help avoid probate of your assets and can save a surviving spouse a great deal of time and effort. As net worth increases and you move into later years, charitable planning is often a satisfying process.

While the hit to local budgets may have a negative impact, in the final analysis the repeal of the Ohio estate tax may be positive for the individual Ohio practitioner. Yes, the tax savings will be meaningful for many of you. But in addition, the repeal will allow Ohio residents and their planners to shift the focus away from estate tax, with its numerous changes and esoteric issues, to things that are more important to a person's quality of life: a focus on family issues, business succession, charitable giving, retirement, and elder law issues.


Jane Fink-Silvers, Attorney, is the owner of Jane Fink Silvers Co., Ltd. in Cincinnati. She has 25 years of experience practicing on the areas of estate planning, small business and professional practice planning, taxation, trusts, and probate. She can be reached at 513-624-6720 or jsilvers@silvers-law.com