In the State of Ohio there is no tax on an inheritance. The money or assets that are transferred to you as the result of someone’s death is not taxed by the State. The federal estate tax exemption 2025 is $13.99 Million per individual. The exemption for 2025 per couple is $27.98. That means that if you are single and you inherit up to $13.99 Million and you declare that inheritance on your income tax returns (as you legally must) then you will not pay any tax on that inheritance. That does not mean that you will not have to pay income tax on gain or distributions from the inherited assets. You will have to pay income tax on the income from the inherited assets or capital gains on the assets when sold as required under the tax code. The income tax required to be paid is based on your tax bracket.
If you have inherited an IRA there are different rules based on your status such as if you are a spouse, a dependent child, if the IRA is held in a trust. The standard under the SECURE Act, which governs IRA distribution rules, is that the beneficiary of the inherited IRA must take distribution of the full value not later than five years after receiving the inheritance. If you are a spouse of the deceased and inherit the IRA you can take distributions over the remainder of your life. The reason we are concerned about the length of the distribution of IRA is that the distributions are taxed according to your tax bracket at each distribution. There are some limited ways to lengthen the timeline for distributions through the use of a trust.
In estate planning you can shift the burden of the income tax that is paid by the estate on any income made while the estate is gathered and distributed. If the estate, whether held in trust or passing to the beneficiaries through the probate court, makes enough income then the estate or trust must file an income tax return and pay taxes on the income. The taxes are paid by the assets of the estate or trust and not by the beneficiaries. Using estate planning tools and designating beneficiaries on assets can control how the tax obligation is distributed between the estate or trust and the individual beneficiaries.
If you have designated one child to be a beneficiary and are counting on that child to ‘do the right thing’ and share with their siblings or other beneficiaries you could be harming that child. The recipient of a gift does not have to pay taxes on it whether inherited or not. However the person making the gift can have to pay taxes on the gift. The current exemption from having to pay tax on a gift is $19,000.00 per person who received the gift per year. Any amount given per year to a single individual per year over $19,000.00 the gifter must pay tax on the gift. If the person making the gift does not wish to pay tax they can declare the gift on their taxes required whether under or over $19,000.00) and use the lifetime gift tax exemption of $1 Million.
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