Ohio Estate Tax: Federal Rules, Exemptions, and Planning for 2025-2026

Ohio estate tax is a topic that often confuses families settling an estate. The good news: Ohio does not have a state estate tax or inheritance tax. The state repealed its estate tax effective January 1, 2013, meaning Ohio estates of any size owe nothing to the state. But the federal estate tax still applies to larger estates, and major changes to the federal exemption amount are scheduled for 2026.

This guide explains what Ohio families need to know about estate taxes, including the federal rules, the upcoming 2026 exemption reduction, gift tax considerations, and practical planning strategies.

Ohio Has No State Estate Tax (Repealed 2013)

Ohio's estate tax was repealed by House Bill 153, effective January 1, 2013. Before repeal, Ohio imposed an estate tax on estates exceeding $338,333, with rates from 6% to 7%.

What This Means for Ohio Families

• No state estate tax filing is required, regardless of estate size
• No state estate tax payment is due
• The repeal applies to all deaths occurring on or after January 1, 2013
• Ohio counties and municipalities cannot impose their own estate taxes

Historical Context

Before repeal, Ohio's estate tax generated revenue that was shared between the state and local governments. Many Ohio counties relied on estate tax revenue for their budgets. When the estate tax was repealed, some counties experienced large revenue losses. Despite periodic discussions about reinstating it, Ohio's estate tax remains repealed.

Ohio Has No Inheritance Tax

It is important to distinguish between estate taxes and inheritance taxes:

Estate Tax: Levied on the total value of the deceased person's estate before distribution.

Inheritance Tax: Levied on the beneficiaries who receive the inheritance, based on what they receive and their relationship to the deceased.

Ohio has neither. Some neighboring states do:

If you inherit property from someone who lived in a state with an inheritance tax, you may owe that state's tax even though you live in Ohio. Similarly, if an Ohio resident left property in a state with an estate tax, that state may tax the property located within its borders.

Federal Estate Tax: Does It Apply?

The federal estate tax applies to estates that exceed the federal exemption amount. For most Ohio families, it will not apply, but understanding the rules is important for estate planning.

Current Federal Exemption (2025)

The federal estate tax exemption for 2025 is $13.99 million per individual. This means:

• An individual can pass up to $13.99 million without owing federal estate tax
• A married couple can effectively shield up to $27.98 million using portability
• Only the amount exceeding the exemption is taxed
• The top federal estate tax rate is 40%

How the Federal Estate Tax Works

The IRS calculates the federal estate tax on the "taxable estate," which is:

1. Gross estate: The fair market value of everything the decedent owned or had an interest in at death
2. Minus deductions: Debts, funeral expenses, administration expenses, charitable bequests, and the marital deduction
3. Equals taxable estate: The amount subject to tax
4. Minus exemption: The unified credit (equivalent to the exemption amount)
5. Equals tax due: At rates from 18% to 40%

What Counts in the Gross Estate

The gross estate includes more than just what you own outright:

• Real estate, stocks, bonds, and bank accounts
• Life insurance proceeds (if you owned the policy)
• Retirement accounts (IRAs, 401(k)s)
• Business interests
• Jointly owned property (your share)
• Trust assets over which you retained control
• Gifts made within three years of death (for certain types)
• Powers of appointment

Who Needs to File Form 706?

Form 706 (United States Estate Tax Return) must be filed if the gross estate plus taxable gifts exceeds the exemption amount. Even if no tax is due (because of deductions), the return may be required. It is also needed to elect portability of the unused exemption for a surviving spouse.

Form 706 is due nine months after the date of death, with an automatic six-month extension available.

The 2026 Federal Exemption Changes

This is the biggest estate tax development in years, and Ohio families with large assets need to plan now.

What Is Changing

The Tax Cuts and Jobs Act (TCJA) of 2017 roughly doubled the federal estate tax exemption. This increase is scheduled to "sunset" on December 31, 2025. Unless Congress acts, the exemption will drop to approximately half its current level:

Who Is Affected

With the higher exemption, fewer than 0.1% of estates owe federal estate tax. If the exemption drops to approximately $7 million:

• More estates will be subject to the tax
• Families with real estate, business interests, life insurance, and retirement accounts may be closer to the threshold than they realize
• Farm families and small business owners in Ohio may be especially affected

What You Can Do Now

If your estate may exceed the lower threshold:

1. Make gifts before 2026. The IRS has confirmed that gifts made while the higher exemption is in effect will not be "clawed back" if the exemption drops. This means you can use the full exemption now without penalty.
2. Review your estate plan. Plans designed for the higher exemption may need adjustment.
3. Consider irrevocable trusts. Transferring assets to irrevocable trusts can remove them from your taxable estate. A revocable living trust does not reduce your taxable estate but still avoids probate costs.
4. Consult a professional. The interaction between the sunset provision, state laws, and your individual situation requires professional guidance.

Gift Tax and Annual Exclusion

The federal gift tax and estate tax are unified, meaning lifetime gifts and estate transfers share the same exemption.

Annual Gift Tax Exclusion

You can give up to $19,000 per person per year (2025 amount) without using any of your lifetime exemption. Key points:

• A married couple can give $38,000 per recipient per year
• No limit on the number of recipients
• No gift tax return required for gifts within the annual exclusion
• The annual exclusion is adjusted for inflation

Gifts That Do Not Count Against the Exemption

Certain gifts are completely exempt from gift tax:

• Payments made directly to medical providers for someone's medical care
• Payments made directly to educational institutions for someone's tuition
• Gifts to a spouse (unlimited marital deduction)
• Gifts to qualified charities

When to File a Gift Tax Return

File Form 709 (United States Gift Tax Return) when you:

• Give more than $19,000 to any one person in a year
• Split gifts with your spouse
• Give a future interest in property
• Want to allocate generation-skipping transfer tax exemption

Filing a return does not necessarily mean you owe tax. It records the gift against your lifetime exemption.

Ohio Income Tax on Inherited Assets

While Ohio has no estate or inheritance tax, inherited assets may generate Ohio income tax liability:

Retirement Account Distributions

Distributions from inherited IRAs and 401(k)s are taxable as ordinary income for Ohio income tax purposes. Under the SECURE Act rules:

• Spouse beneficiaries can roll over to their own IRA or take distributions over their lifetime
• Most non-spouse beneficiaries must empty the inherited account within 10 years
• Eligible designated beneficiaries (minor children, disabled individuals, chronically ill individuals, individuals not more than 10 years younger than the decedent) may have extended distribution options

Capital Gains on Inherited Property

When you sell inherited property for more than its stepped-up basis, the gain is subject to Ohio income tax. Ohio taxes capital gains as ordinary income.

Trust Income

If inherited assets are held in a trust that generates income, Ohio imposes a fiduciary income tax on undistributed trust income. Distributed income is generally taxed to the beneficiary.

Estate Tax Planning Strategies

Marital Deduction and Portability

Unlimited Marital Deduction: Everything left to a surviving spouse is exempt from federal estate tax. This defers the tax until the second spouse dies.

Portability: The surviving spouse can use the deceased spouse's unused exemption amount (DSUE). To claim portability, the executor must file Form 706, even if no tax is due. This effectively gives a married couple double the individual exemption.

Example: If the first spouse dies in 2025 with a $5 million estate and leaves everything to the surviving spouse, the surviving spouse can claim the unused $8.99 million ($13.99 million minus $5 million) in addition to their own $13.99 million exemption.

Credit Shelter (Bypass) Trusts

A credit shelter trust (also called a bypass trust or B trust) holds assets up to the exemption amount for the benefit of the surviving spouse and children. The assets are not included in the surviving spouse's estate at their death.

While portability has reduced the need for these trusts, they still offer advantages:

• Protection from creditors
• Asset growth outside the surviving spouse's estate
• Control over ultimate distribution
• State estate tax planning (less relevant in Ohio, but important if you own property in states with estate taxes)

Irrevocable Life Insurance Trust (ILIT)

Life insurance proceeds are included in your gross estate if you own the policy. An ILIT removes the policy from your estate:

• The trust owns and pays premiums on the policy
• Proceeds are paid to the trust at death
• The trustee distributes proceeds to beneficiaries according to trust terms
• Proceeds are not subject to estate tax

Charitable Planning

Charitable gifts reduce your taxable estate dollar for dollar:

• Charitable remainder trust: Provides income to you during life, remainder to charity
• Charitable lead trust: Provides income to charity for a term, remainder to your heirs
• Direct charitable bequests: Deductible from the gross estate
• Donor-advised funds: Receive current income tax deduction, distribute to charities over time

Family Limited Partnerships and LLCs

Transferring assets to a family limited partnership or LLC can provide:

• Valuation discounts (minority interest and lack of marketability)
• Gradual transfer of wealth through gift of limited partnership interests
• Centralized management of family assets
• Asset protection

These must be structured properly and have a legitimate business purpose to withstand IRS scrutiny.

Filing Federal Estate Tax Return (Form 706)

When Form 706 Is Required

File Form 706 when:

• The gross estate plus adjusted taxable gifts exceeds the exemption amount
• The estate needs to elect portability for the surviving spouse
• The estate claims the generation-skipping transfer tax exemption

Filing Deadline

• Due nine months after the date of death
• Automatic six-month extension available by filing Form 4768
• Tax payment is still due at nine months (extension is for filing, not payment)

What Form 706 Includes

• Detailed inventory of all assets with date-of-death values
• Deductions for debts, expenses, and bequests
• Calculation of the taxable estate and tax due
• Portability election (if applicable)
• Generation-skipping transfer tax allocation

Professional Help

Form 706 is one of the most complex federal tax returns. Even estates that clearly owe no tax may benefit from professional preparation to:

• Properly elect portability
• Document valuations
• Claim all available deductions
• Allocate the GST exemption correctly

Tax Implications for Different Beneficiaries

Surviving Spouse

• Unlimited marital deduction: no estate tax on assets left to a surviving spouse
• Portability: can claim deceased spouse's unused exemption
• Inherited IRA: can roll over to own IRA or treat as own
• Step-up in basis on inherited assets

Children and Other Individual Beneficiaries

• Subject to estate tax if estate exceeds exemption (after marital and other deductions)
• Inherited IRA: 10-year distribution rule applies (SECURE Act)
• Step-up in basis on inherited assets
• No Ohio inheritance tax

Charities

• Charitable deduction eliminates estate tax on bequests to qualified charities
• No income tax on distributions from inherited retirement accounts
• Consider naming charities as IRA beneficiaries (they pay no income tax on distributions)

Trusts

• Trusts can be used to control distribution timing and protect beneficiaries
• Trust income tax rates reach the highest bracket quickly (over $15,200 in 2025)
• Distributing income to beneficiaries usually results in lower overall tax

Working with a Tax Professional

Estate tax planning involves the intersection of federal and state tax law, property law, and individual financial circumstances. Consider working with:

Estate Planning Attorney

For creating or updating wills, trusts, and other documents that implement tax-saving strategies. Look for an attorney with specific experience in Ohio estate planning.

CPA or Tax Advisor

For preparing estate tax returns (Form 706), trust income tax returns (Form 1041), and advising on income tax implications of estate distributions.

Financial Advisor

For investment management, insurance planning, and coordinating the financial aspects of your estate plan with your legal documents.

When to Seek Help

• Your estate may exceed the federal exemption (current or projected 2026 level)
• You own a business or farm
• You have complex family situations (blended families, special needs beneficiaries)
• You own property in multiple states
• You want to make large lifetime gifts
• You need to file Form 706

Use our probate cost calculator to estimate the costs of settling an Ohio estate.

Frequently Asked Questions

Does Ohio have an estate tax?

No. Ohio repealed its estate tax effective January 1, 2013. There is no state estate tax or inheritance tax in Ohio.

Does Ohio have an inheritance tax?

No. Ohio does not impose an inheritance tax. But if you inherit property from someone who lived in a state with an inheritance tax (like Pennsylvania or Kentucky), you may owe that state's tax.

How much can you inherit without paying federal estate tax?

In 2025, the federal exemption is $13.99 million per individual ($27.98 million for married couples using portability). Only the amount exceeding the exemption is taxed. This exemption is expected to drop to approximately $7 million in 2026.

Do I need to report an inheritance on my Ohio tax return?

The inheritance itself is not taxable income. But income generated by inherited assets (interest, dividends, rental income, retirement account distributions) is taxable. Capital gains from selling inherited property above the stepped-up basis are also taxable.

What is portability and how do I claim it?

Portability allows a surviving spouse to use the deceased spouse's unused federal estate tax exemption. To claim it, the executor must file Form 706 within 9 months of death (or extended deadline). This is important even for smaller estates if the couple's combined assets could eventually exceed one person's exemption.

Will the federal estate tax exemption really drop in 2026?

Under current law (the TCJA sunset provision), yes. Unless Congress passes new legislation, the exemption will revert to approximately $7 million (adjusted for inflation) on January 1, 2026. Planning now is prudent regardless of potential legislative changes.

Is life insurance subject to estate tax?

Life insurance proceeds are included in your gross estate if you owned the policy or had "incidents of ownership." An irrevocable life insurance trust (ILIT) can remove the proceeds from your estate. Proceeds paid to a named beneficiary avoid probate but do not automatically avoid estate tax.

Related Ohio Guides

• Ohio Step-Up in Basis
• Ohio Probate Costs
• Ohio Estate Planning Basics
• Ohio Probate Cost Calculator
• Selling Inherited Property in Ohio

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Last Updated: February 2026. This guide provides general information about estate taxes as they apply to Ohio estates. Tax law is complex and changes frequently. Consult with a tax professional or estate planning attorney for advice specific to your situation.