Few people actually have to face an estate tax, but for those who have many assets, the question of how the estate tax could affect them remains. The estate tax is not the only tax that can affect an estate, to be clear. Gift taxes are sometimes ignored but can be substantial. State inheritance taxes are sometimes levied as well.
In 2019, the federal estate tax is placed on estates valued at over $11.4 million. If you have a home in Ohio, you don't have to worry about the state inheritance taxes that could be used against your estate in other locations. Gift taxes, however, may still affect you.
The lifetime gift tax exemption is included with the estate tax exemption. This is important to understand because it's not only the current value of your estate, but also the gifts you've given away, that could lead to estate taxes in the end.
Certain gifts are not taxable, and it's those you'd need to make to reduce the overall value of your estate (as one option to do so). Some of those gifts include:
- Gifts for education tuition if paid directly to the school
- Gifts to cover medical expenses when paid to the facility
- Gifts to political organizations
- Gifts to charities that have been approved by the IRS
- Gifts to your spouse (if they are a U.S. citizen)
These gifts are exempt from federal gift taxes, so you don't have to report them to the IRS. That's a huge benefit that you should consider using to your advantage in your estate plan.