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Estate Planning Tax Considerations in Florida

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    Estate Planning Tax Considerations in Florida

    Estate Planning Tax Considerations in Florida

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    Tax-focused estate planning can help you reduce or eliminate the effect of taxes on your family’s wealth. Through careful planning, you can significantly reduce the tax burden for your beneficiaries, potentially for generations to come.

    For wealthy families, estate planning taxes should be a primary focus. This guide will give you an overview of Florida estate planning tax considerations. However, this text is for reference purposes only.

    You should always consult an estate planning lawyer before making decisions to ensure you follow all state and federal laws.

    What Estate Taxes Are There in Florida?

    No Florida Estate Tax

    Every American should be aware of estate taxes (also called ‘inheritance taxes’ or ‘death tax’). These are taxes applied to the estate before a beneficiary receives their inheritance after a death.

    There is no estate tax in the state of Florida or state income tax, making it a very attractive state for wealthy people. For an estate tax to be added to state law, 60% of Florida voters would have to vote for a change to the state constitution.

    Federal Estate Taxes

    Federal estate taxes (or inheritance taxes) can apply to all U.S. citizens or residents. The estate tax amount is determined by the value of assets (called the taxable estate) multiplied by a progressive tax rate.

    However, As of 2022, federal estate taxes only apply to taxable estate valued at $12.06 million or more. So, very few people need to worry about federal estate taxes. But those who do should think wisely and also consult an estate planning lawyer.

    Our Florida estate planning attorneys welcome you to receive a free consultation today if you need professional advice.

    Florida Gift Taxes

    There has been no Florida gift tax since it was repealed in 2004. However, large gifts made to family members may still be subject to federal gift taxes.

    As of 2022, the annual federal exclusion for gift taxes is $16,000, with a lifetime exclusion of $12.06 million.

    Other States

    Florida residents may still qualify for estate taxes on property in other states. If you were to pass away in Florida while owning property in another state, then your estate may be liable to those taxes.

    To determine if you are, you should consult the laws of the states that you own property in.

    Florida Estate Planning Tax Considerations

    You may still need to be aware of tax impacts, even if you’re not a multi-millionaire. In some circumstances, beneficiaries may be required to pay forms of tax on assets they inherit. For example:

    Retirement Accounts

    Taxes don’t apply to the inheritance of retirement accounts (such as 401ks, IRAs and an annuity), but taxes may be levied when funds are withdrawn after the account holder’s death. Benefits received from investment accounts and retirement plans may also be taxable.

    Read: How to Pass Retirement Accounts to Beneficiaries

    Income Generation

    If assets and property from an estate generate income, then the income may be subject to taxation before the beneficiary receives it.

    Assets Sold

    If a beneficiary sells inherited assets, then the funds may be subject to federal income taxes. This is usually only the case if the asset has appreciated in value after the decedent’s passing.

    Read: Assets to Consider During Estate Planning

    Inheritance from Non-U.S. Citizens

    If, as a beneficiary, you inherit assets from a non-U.S. citizen, you may face taxes. For example, if the decedent individual was not a permanent resident of the U.S., but owned property in Florida, then that property may be taxable after their death.

    Non-citizen beneficiaries may also be unable to inherit an estate without tax consequences. Anyone in this position should consult an estate planning attorney.

    Estate Planning Ways to Reduce or Avoid Estate Taxes in Florida

    Many tax obligations can be reduced or avoided entirely through various legal estate planning tools. These tools use legal opportunities to restructure assets and their ownership. However, you should only ever decide or perform these estate planning tools with the assistance of a Florida estate planning lawyer.

    Irrevocable Trusts

    Taxes can be reduced or bypassed entirely by gifting assets into irrevocable trusts. Your beneficiaries of choice can then later receive these assets without the burden of estate taxes, as the original owner gave up ownership upon the creation of the trust.

    Without that individual ownership, the assets are no longer part of the trustor’s taxable estate. However, there is no turning back once placed in an irrevocable trust. The trustor gives up all ownership. Therefore, it’s advised that you think carefully about the pros and cons of your personal circumstances.

    There is no requirement to place all assets into the trust. So, you can cherry-pick which assets will benefit your family later without the need to retain ownership while you’re alive.

    Life Insurance

    Life insurance policies can allow you to reduce taxes levied against estates, as they’re exempt from federal income taxes when paid to beneficiaries.

    However, they may still be subject to taxation if the proceeds are included as part of your taxable estate.

    A common solution is to transfer ownership of the life insurance policy to a trust or other person. Policyholders can create irrevocable life insurance trusts, for example.

    What Is Portability?

    Surviving spouses can protect themselves from estate or gift taxes after the death of their spouse through a federal tax law provision called portability. In brief, this provision allows the surviving spouse to use unused estate and gift tax exemptions when their loved one passes away.

    Contact an Estate Planning Attorney for Tax Planning

    If you’re interested in tax planning and estate planning tax considerations in Florida, then our Florida estate planning attorneys can help.

    We regularly assist families and individuals in protecting their wealth through structuring and legal solutions that reduce the impact of taxes.

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    Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can create an estate plan with tax considerations for decades to come.

    Schedule a free consultation today to get started.

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