While some states impose an inheritance tax on a deceased individual’s assets, Oklahoma is not one of these states. Even though the state of Oklahoma does not require taxes on a person’s estate, individuals must still contend with federal estate taxes.
Federal Tax Laws
Federal estate taxes only apply to individuals who wish to pass on a large amount of finances to their family. Since 2013, every person in the country has the right to transfer up to $5.26 without owing any estate taxes. There are many nuances associated with federal estate tax law including that spouses are permitted to combine tax exemptions which allows married couples to transfer over $10 million to beneficiaries without owing taxes.
Assets from Other States
While the state of Oklahoma does not have any inheritance taxes, an individual could still end up paying inheritance tax to another state. This tax can be owed if a person who lives in one of the states with inheritance tax (Iowa, Kentucky, Nebraska, New Jersey, or Pennsylvania) gifts an asset to a beneficiary who lives in Oklahoma. The amount that is taxed will be based on the value of what a person inherits and that beneficiary’s relationship to the deceased individual.
Estate Taxes in Oklahoma
Many individuals are confused about the differences between estate and inheritance taxes. Estate taxes are paid by the estate and are not based on a party that inherits assets or property. If a person leaves money to anyone who is not a spouse, estate taxes often must be paid if the estate is large enough to be considered taxable. Inheritance taxes, however, are paid by the person who inherits the assets. Fortunately, Oklahoma does not have either tax.
The Pick Up Tax in Oklahoma
Prior to January 1, 2005, if a deceased Oklahoma resident owed federal estate taxes than the Oklahoma Tax Commission collected a pick up tax from the deceased resident’s estate. The pickup tax, however, has since been phased out of use in the state of Oklahoma. The state of Oklahoma, however, later enacted a separate estate tax but this tax was repealed as of January 1, 2010. It is unlikely that the state of Oklahoma begins to make efforts to collect any type of state estate tax or inheritance tax at any time in the future.
Gift Tax Liability
Some individuals attempt to pass assets while they are still alive to avoid taxes. A person is able to give up to $14,000 in 2017 to each designated beneficiary each year without any gift taxes being placed. Gifts that are greater than this amount are counted against a gift tax exemption of $5,490,000. Individuals, however, are able to give an unlimited amount of property to a spouse unless the spouse is not a citizen of the United States.
Contact a Seasoned Estate Planning Attorney
If you are worried about how federal estate tax will affect your estate and want to use various estate planning techniques to maximize your estate’s value, consider contacting our law office. Attorney Jim A Lyon understands the impact that taxes can have on inheritance and can help navigate the issues that arise in your case.