Most people are in favor of abolishing all estate taxes. The idea of paying tax for dying is reprehensible to most Americans. However, most people do not fully understand who is subject to estate taxation. It is interesting to note that, very few people are subject to the Federal estate tax. In 2008 less than one percent of deceased persons will be subject to Federal estate tax. Still the estate tax remains an important issue to many people and politicians alike.

An estate tax is a transfer tax that is triggered by an individual's death. Estate tax is normally paid by the decedent's estate. Both the State of Ohio and the Federal Government have an estate tax. The Ohio and Federal estate tax are governed by a different set of laws.

Let us start by looking at the Federal estate tax laws. As stated above, very few people are subject to the Federal estate tax because there is a $2,000,000 exemption. Put simply, if you have less than $2,000,000 at the time of your death you are not subject to Federal estate tax. Federal estate tax is only accessed on amounts greater than $2,000,000. This exemption amount will increase to $3,500,000 in 2009.

Any assets greater than $2,000,000 are taxed at a rate of 41 percent to 46 percent. Therefore, the first $2,000,000 in any estate passes to the beneficiaries tax free. For example, Howard dies leaving $2,100,000 to his two children. Howard's first $2,000,000 will pass to Howard's children tax free. The amount in excess of $2,000,000, in this case $100,000, would be taxed at a rate of 41%. Howard's estate would owe $41,000 in Federal estate tax. As you can see, once an individual's assets are greater than the $2,000,000 exemption, tax adds up quickly.

Unlike the Federal estate tax, the Ohio estate tax applies to a larger number of estates. Fortunately, Ohio estate tax rates are much lower then the Federal estate tax rates. The Ohio estate tax exemption is $338,333. Ohio has a two tiered tax rate. The Ohio estate tax rate is six percent for amounts greater than $338,333 and up to $500,000. All amounts greater than $500,000 are taxed at the rate of seven percent.

For instance, assume Howard passes away leaving an estate worth $600,000. Howard would pay six percent tax rate on the estate amount greater than $338,333 but less than $500,000. On amounts greater than $500,000 Howard will pay seven percent. Howard would have to pay an Ohio estate tax equal to $16,700.00. Luckily for Howard he would not have to pay the federal estate tax.

There are many ways to limit or eliminate both federal and Ohio estates taxes through the use of trusts and other estate planning techniques. Additionally, there are many exceptions and deductions that may reduce estate tax liability. There are too many deductions and exceptions to touch on them all, but I would like to mention the marital deduction. An individual may transfer all of his or her property upon death to a surviving spouse without incurring any tax liability. This is a powerful planning tool and ensures that spouses are not burdened with estate taxes.

A basic knowledge of the estate tax systems should help you when making your estate plan. It is not important that you become a master of estate taxation rather that you know enough to ask a tax professional for help. If you have concerns about your potential estate tax liability, contact your tax advisor. He or she will be able to make sure you have an appropriate plan in place.