People take advantage of estate planning for a wide variety of reasons. For some, there is a desire to expedite the transfer of assets and help their heirs avoid the long delays associated with the probate process. For others, there is a need to use unique tools like the Special Needs Trust to provide care for disabled heirs. And then there are those individuals and families who have legitimate concerns about estate tax implications. If you are one of the many people with Florida estate tax questions, it’s important to have access to the answers you need.
Does Florida Have an Estate Tax?
Florida used to levy estate taxes based on the Federal tax, but that tax went away due to changes in the Federal statutes. Under that old system, estates that were large enough to qualify for Federal estate tax liability would trigger estate tax liability at the state level. However, that tax was not an additional tax on the estate, but instead allowed the state to receive a portion of the Federal estate tax. The total tax liability remained the same, as Federal law provided a credit that allowed filers to offset the state’s portion. Florida currently has no state estate tax in place, and no inheritance tax.
However, some Florida residents may have estates that still end up being subject to estate tax liability in other states. For example, if you live in Florida but have property in another state that maintains an estate tax, and those holdings are sufficient to meet the estate tax threshold for that state, then state estate taxes may be applicable when you pass away. Alternatively, your estate could become subject to state estate tax liability if you move from Florida to one of those states. To ensure that your estate is protected, it is important to pursue sound estate planning that includes estate tax strategies.
Will the Federal Estate Tax Impact My Estate?
That doesn’t mean that Florida residents are free from all potential estate tax liability, however. The Federal estate tax is still in effect, and covers all estates valued at more than $5.45 million. As you might imagine, this tax affects only a relatively small number of estates each year. Still, life insurance policies and business holdings can result in some people’s estate being larger than they anticipated, and that can lead to surprises when a decedent hasn’t properly planned for estate tax issues.
What Part of My Estate Is Taxable?
It’s important to understand how your estate is valuated to determine which part of it is considered taxable for estate tax purposes. When calculating the value of your taxable estate, the total value of assets like your home, business holdings, life insurance policies, savings and checking accounts, pensions, individual retirement accounts, and other real estate interests are included. Your debts, charitable bequests, spousal bequests, funeral expenses, and other exemptions are deducted from that total amount to determine the taxable estate.
Are There Ways to Avoid the Estate Tax?
For anyone concerned about the possibility of estate tax liability, estate planning is essential. Fortunately, there are a variety of different tools and strategies that can be used to minimize estate tax liability and protect assets so that they benefit your heirs rather than the government. An experienced estate planning attorney can help you to determine which strategies are right for your planning needs.
- Gifts: Gifting can be an effective strategy to reduce the size of your estate and accomplish several important goals. By reducing the value of your estate, you reduce tax liability. At the same time, you gain an opportunity to provide benefits to your heirs – while you’re still alive to see how the money impacts their lives. There are limitations on gifting that you need to know about, however.
Each year, you can give as much as $14,000 to any individual without affecting your lifetime gift exemption of $5.45 million. You can give this amount to as many people as you desire, and the gift can be matched by your spouse. Best of all, these gifts are not subject to income tax for the person receiving the money. In addition, you can give unlimited amounts of money if those gifts are paid directly to educational venues or medical service providers.
- Trusts: You can also use various types of trusts to shield wealth from the estate tax. The Credit Shelter Trust is a good example of how this can be done. Using this trust, you and your spouse can basically double the amount of wealth that you can eventually pass on to your children by escaping estate tax liability. When one of you dies, half of your marital assets are directed into the Credit Shelter Trust (up to the total amount of the gift tax exemption), and the other half gets directed to a survivor’s Trust.
- Charitable Trusts: For many people whose estates will owe estate tax, charitable giving can be an important part of sound estate planning. With a remainder trust, you can give to charity and still receive income from the trust for the remainder of your life. That provides you with an easy way to reduce the size of your taxable estate while converting taxable assets into reliable income.
How Can You Navigate Complex Estate Tax Issues?
Of course, the most difficult part of dealing with the estate tax involves the complex laws that govern this system of taxation. It’s virtually impossible to properly prepare for estate tax liability without the assistance of someone who understands the law and all the tools and strategies that can be used to minimize its impact on your estate. At Robert J. Kulas, P.A., Medicaid & Estate Planning Attorneys, our Florida estate tax experts have the estate planning experience you need to help you manage your estate tax concerns. We’ll help you create the comprehensive plan you need to ensure that your tax liability is minimized, while utilizing strategies and tools that help you achieve your broader planning goals. To learn more about how we can help you with your tax questions, contact us online or call us today at (772) 398-0720.
