By David L. Marrison, OSU Associate Professor
One worry which was taken off the minds of many farm families was the threat of the federal estate tax reverting to a $1 million dollar exemption in 2013. This worry was eliminated with the estate tax provisions of the fiscal cliff legislation titled American Taxpayer Relief Act of 2012 in January 2013. Farmers now can breathe easier with respect to the federal estate tax. To top it off, the Ohio legislature had also voted to repeal the Ohio Estate tax beginning January 1, 2013. These article examines these changes and how they may impact Ohio farm families.
Federal Estate Tax Changes
The American Taxpayer Relief Act permanently sets the federal exemption for gifts and estates at $5 million instead of dropping to the aforementioned $1 million level. This amount will be indexed for inflation. The IRS has announced the 2013 limits will be $5,250,000 up from its 2011 level of $5,125,000. It should be noted that this legislation included the word “permanent.” This is significant as many fiscal agreements made by Congress since 2001 have contained a phase out date.
The legislation also allows for portability or the transfer of the unused exemption of a deceased spouse to the surviving spouse. To gain this portability, the executor of an estate must properly file the deceased’s estate tax return within nine months. Once the filing is completed, the remaining exemption is transferred to the spouse of the deceased, who can then use it for her or his estate or lifetime giving. Married individuals should file an estate tax return so that their spouses can receive the exemption, no matter their wealth at the time of death.
The rate for taxing amounts in excess of $5,250,000 has increased from 35% to 40%. But for many, this was an acceptable compromise since it was scheduled to increase to 55% in 2013 (with an exemption of $1,000,000).
Ohio Estate Tax
As of January 1, 2013, the Ohio estate tax has been repealed. Governor John Kasich signed the provision into law on June 30, 2011 as part of the state’s budget package. Previously, the value of any estate over $338,333 was taxed at 7%. This limit of $338,333 was one of the lowest limits in the nation making estate planning for farm families often a tricky process.
Review your Estate Plans
With more favorable estate tax limits at both the federal and state levels, there have been concerns expressed by attorneys that farm families should not get lulled into a false sense of security. In the past, it was the fear of paying the estate tax which often prompted the family to visit their lawyer, accountant, and other planners to talk about farm succession and estate planning. Farm families should take this opportunity to visit their professionals to review their plan especially to make sure that they will not exceed the limits in the future. Families should also have a plan B for if the Ohio Estate Tax returns under future governmental leadership as well as plan for long-term care, retirement, and succession.