For many Ohio families, the question of “death taxes” brings a mix of relief and anxiety. You may have heard that Ohio repealed its estate tax years ago, which is true, but headlines about the “2026 Federal Cliff” and changing exemptions are causing confusion.
If you are an executor settling an estate, or a prudent planner looking at your own legacy, you need clarity, not legal jargon. The reality is a paradox. Ohio gives you a pass, but the IRS is watching the clock.
While the state of Ohio will not tax your estate, failing to plan for the upcoming federal changes, or overlooking hidden traps like retirement account taxation, could cost your family significantly. At Jarvis Law Office, we will walk you through exactly what taxes apply, which ones don’t, and the critical “portability” filings you must not miss.
Key Takeaways
- Ohio has no estate or inheritance tax, so most families owe nothing to the state.
- Federal rules still matter and executors may need Form 706 to preserve spousal portability (DSUE).
- Common “tax traps” are income tax on inherited IRAs, out-of-state property exposure, and missed portability filings.
Understanding the 2013 Repeal on Estate Tax
As of January 1, 2013, Ohio officially repealed its estate tax (via House Bill 153).
Before this repeal, Ohio had one of the most aggressive estate taxes in the Midwest, taxing estates valued over just $338,333. Today, that tax is gone. Whether you leave behind $500,000 or $50 million, you do not owe a penny in estate tax to the State of Ohio.
Estate Tax vs. Inheritance Tax
It is vital to understand the terminology, as misinformation often spreads from neighboring states.
- Estate Tax: A tax levied on the estate itself before assets are distributed.
- Ohio Status: Repealed.
- Inheritance Tax: A tax levied on the beneficiaries (the people receiving the money) based on their relationship to the deceased.
- Ohio Status: Repealed.
This is a significant advantage for Ohio residents. Compare this to our neighbors: Pennsylvania still enforces an inheritance tax that can hit adult children at 4.5% and siblings at 12%. Because you are domiciled in Ohio, your beneficiaries are generally shielded from these state-level levies on your primary assets.
What is the 2026 Federal Estate Tax Cliff
The “2026 federal estate tax cliff” is the feared end-of-2025 TCJA sunset that was expected to cut the federal estate/gift tax exemption roughly in half starting January 1, 2026, meaning many more estates could have become taxable.
But as of the IRS’s current guidance, that drop did not happen: the 2026 basic exclusion amount is $15,000,000 per person (up from $13,990,000 in 2025).
The Three Hidden “Tax Traps” for Ohio Families
Even with no Ohio estate tax and a high federal exemption, families often walk into three specific financial traps. As an estate tax planning attorney, we see these scenarios erode legacies that should have been protected.
Trap 1: The “Border State” Exposure
Do you own a vacation cottage in West Virginia? Or perhaps a hunting property in Kentucky?
While your bank accounts and stocks are taxed based on where you live (Ohio), real estate is taxed based on where it sits (Situs).
- The Risk: If you die a resident of Ohio but own property in Pennsylvania, your estate may still owe Pennsylvania Inheritance Tax on the value of that specific property.
- The Solution: Placing out-of-state property into a Revocable Living Trust or an LLC can sometimes alter how these assets are categorized for tax purposes, potentially avoiding ancillary probate and foreign state taxes.
Trap 2: The Inherited IRA (The Income Tax Surprise)
This is the most common misunderstanding we encounter. When a beneficiary receives a 401(k) or IRA, they often ask, “Do I owe estate tax on this?” The answer is usually no (regarding estate tax), but they will face a massive Income Tax liability.
Under the SECURE Act 2.0, most non-spouse beneficiaries (like children) can no longer “stretch” distributions over their lifetime. They must withdraw and pay income tax on the entire account within 10 years.
- The Impact: If your daughter inherits a $500,000 IRA and is in her peak earning years, forced distributions could push her into the highest federal tax bracket, losing 30%+ of the legacy to income tax.
- Planning Insight: This is distinct from 401k account divisions, this is purely about tax efficiency transfer. Strategic Roth conversions or charitable planning can mitigate this.
Trap 3: The Portability Mistake (The “DSUE” Election)
This is a critical procedural step for surviving spouses.
If one spouse passes away in 2025 with $2 million in assets, they have “unused” federal exemption (approx. $11.99 million unused). The surviving spouse can “inherit” this unused exemption, a concept called Portability or DSUE (Deceased Spousal Unused Exclusion). However, this is not automatic.
To claim this protection, the executor must file Federal Form 706 within 9 months of death (or up to 2-5 years under certain relief provisions), even if no tax is currently due.
If you fail to file this form, that unused credit disappears. If the surviving spouse lives another 10 years and their assets grow, or the exemption drops in 2026, they may owe taxes that could have been completely avoided with one form.
Executor’s Checklist For Managing Tax Exposure
If you have been named the executor, your role involves more than just reading the Will. You must make sure you don’t inadvertently trigger liability. Here is a simplified framework for Ohio executors:
- Confirm the Date of Death: Tax laws are time-sensitive. Confirm you are applying the rules for the correct tax year.
- Inventory All Assets: Include non-probate assets like life insurance and retirement accounts to determine the total Gross Estate value.
- Evaluate Federal Filing Needs: If the estate exceeds the filing threshold OR if you need to preserve Portability for a surviving spouse, prepare to file IRS Form 706.
- File the Final Income Tax Return: The estate must file a final Form 1040 for the deceased’s income earned up to the date of death.
- Address Income Tax for the Estate: If the estate generates more than $600 in income (interest, dividends) during the administration process, you must file Form 1041.
Handling these forms is complex. Understanding executor requirements is the first step to avoiding personal liability for unpaid taxes.
3 Strategic Planning Tools
If your evaluation suggests your estate might exceed the projected $7 million threshold (or $14 million for a couple) after 2026, we have several levers to pull to reduce your taxable estate.
1. The Annual Gift Exclusion
In 2026, you can give $19,000 per year, per recipient without reporting it to the IRS. A couple with three children and seven grandchildren could gift $380,000 annually out of their estate, tax-free, lowering their overall exposure.
2. Charitable Planning
Assets left to a qualified charity are 100% deductible from your taxable estate. For families with highly appreciated assets or large IRAs, charitable planning can be used to zero-out estate taxes while supporting the causes you value, rather than sending that money to the Treasury.
3. Irrevocable Life Insurance Trusts (ILIT)
Life insurance payouts are generally income-tax-free, but they are not estate-tax-free. If you have a large policy, it counts toward your exemption limit. Moving ownership of the policy into an ILIT removes those proceeds from your taxable estate entirely.
Clarity Brings Confidence
The absence of an Ohio estate tax is a blessing, but it shouldn’t lull you into a false sense of security. Between the looming 2026 federal sunset, the complexity of inherited retirement accounts, and the nuances of portability, the landscape requires a vigilant eye.
You don’t have to handle these projections alone. At Jarvis Law Office, we focus on helping Ohio families look beyond the simple “yes or no” of taxes to build comprehensive plans that protect assets from every angle, be it the IRS, nursing home costs, or probate courts.
If you are concerned about how the 2026 sunset affects your family, or if you are an executor needing guidance on tax filings, contact Jarvis Law Office today for a consultation. Let’s make sure your legacy goes exactly where you intend.
