Estate taxes in Florida are one of the primary reasons seniors decide to pack up and move here – because Florida doesn’t impose state estate taxes. But, federal estate taxes still exist for all Floridians and can take a huge bite out of your family’s wealth.
Thankfully, there are ways to minimize estate taxes. Here’s how:
Please note: you should always speak to an estate planning attorney before making any estate planning or tax-related decisions, to ensure you do everything legally and in your family’s best interests.
Inheritance Taxes in Florida Explained
A quick 101 Estate taxes guide for you:
Florida does not impose an inheritance tax. That means if you’re a Florida resident, you and your family don’t have to pay a cent to the State of Florida through estate or inheritance taxes when someone in your family dies.
This is written into The Florida Constitution, so estate taxes in Florida can only be enacted if Florida voters vote to amend the constitution.
However, if a Florida resident dies while owning property located in another state, they may have to pay inheritance taxes in that state.
Finally, and most importantly, Federal estate taxes still exist even for Florida residents.
Federal Estate Tax
If assets are passed to your beneficiaries or heirs after your death, then federal taxes will be applied. These include ‘estate taxes’, ‘gift taxes’ and ‘generation-skipping taxes’.
U.S. federal estate tax is applied on the taxable estate of every decedent in the U.S. The amount of estate tax that will be imposed is based on a progressive tax rate.
As of 2021, Federal Estate taxes usually only apply to assets over $11.7 million with a tax rate of 18-40%.
An estate planning attorney’s expertise may be able to help you minimize estate taxes through several methods, including:
- Gifting assets.
- Leaving assets to qualifying charities.
- Shielding your assets in a Trust.
How to Minimize Estate Taxes in Florida:
Gifting Assets
One of the simplest ways to minimize estate taxes in Florida is to gift your assets while you’re still alive. By gifting your assets to your family now, they can potentially avoid paying estate taxes when you die.
As previously mentioned, there are still federal ‘gift taxes’. However, annual and lifetime allowances mean they don’t impact most people.
Annual Gift Taxes:
- As of 2021, there is a maximum allowable annual gift-tax exclusion of $15,000 per donor, per recipient.
- This allows you to gift $15,000 in assets a year to each individual, free from federal gift taxes.
- If your gift exceeds $15,000, it must be reported on IRS Form 709 (Gift Tax Return).
Lifetime Gift Taxes:
- As of 2021, there is an $11.7 million lifetime gift tax exemption.
- This can allow you to go over your $15,000 annual gift tax exemption.
If you are considering minimizing estate taxes through gifting assets, then you should contact an estate planning attorney.
Set Up An Irrevocable Trust
Although gifting assets is great for minimizing estate taxes, it’s not suitable for every family. You might not want to give your children or grandchildren large amounts of money at a young age.
The solution to this is to set up a trust, with the child as a beneficiary.
Trusts allow you to set the rules, so your child only gets access to assets and funds at a pre-decided event age or date.
Trusts are an extremely important part of any estate plan but are complicated when minimizing estate taxes. If you wish to set up a trust to minimize estate taxes in Florida, you should contact an estate planning attorney.
Life Insurance Trust
If your life insurance proceeds become part of your estate, then it could be subject to federal taxation.
To avoid this, you can create an irrevocable life insurance trust. Most people set up trust then transfer the ownership to someone else.
By transferring the life insurance policy to someone else, you can avoid death benefits becoming part of your estate.
It’s generally advised to do this as soon as possible. If you die within three years of transferring the trust, then it may still be considered part of your taxable estate.
As always, you’re advised to speak to a Florida estate planning attorney to see what is best for you and your family.
Make Charitable Donations
Some people are able to minimize estate taxes in Florida by transferring part of their wealth to a charity, through a trust – such as a ‘Charitable Lead Trust (CLT)’ and a ‘Charitable Remainder Trust (CRT)’.
A CLT allows some of the assets in the trust to be transferred to a tax-exempt charity.
The benefit of making a donation to charity is that you lower the value of your estate and can have an extra tax break.
When you die, the remaining assets in the trust will be transferred to your beneficiaries.
A CRT is slightly different. A CRT can allow you to transfer stocks or appreciated assets to an irrevocable trust. When you die, the investment income will go to a charity – allowing you to avoid the capital gains tax and minimize your estate taxes.
If you’re interested in making charitable donations to minimize estate taxes in Florida, you should first consult a Florida estate planning attorney.
Establish a Family Limited Partnership
A family-limited partnership can allow your children to gain ownership of family-owned businesses or assets after your death.
With partners having a stake in your company or owning a portion of your assets, the size of your taxable estate can be reduced.
If you want to form a company to minimize estate taxes in Florida, you should contact a Florida estate planning attorney for expert advice that is specific to your circumstances.
Fund a Qualified Personal Residence Trust.
Another way is to reduce the number of assets subject to federal estate tax by funding a qualified personal residence trust (QPRT). This type of trust can allow you to transfer ownership of your home into a trust.
You can continue to live in the property until the beneficiaries take control after the term ends.
A QPRT can freeze your property’s market value and bypass gift taxes while reducing the size of your estate.
Note, that if you die before the end of your trust’s terms, the property will still be part of your taxable estate.
You should always contact an estate planning attorney before deciding on any steps to minimize estate taxes in Florida.
Contact a Florida Tax and Estate Planning Attorney
Thanks to Florida’s lack of estate taxes, you most likely won’t need to worry about your family’s wealth taking a hit.
But people with significant estates should still be wary of federal estate taxes. Thankfully, you can get around it and lower the impact on your family with the methods listed above and more.
The best thing you can do at this point is to speak to a Florida estate planning attorney.
Free Consultations
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, we’ll help you minimize estate taxes by making use of loopholes and strategies that benefit people like you, while still meeting the law.
Schedule a free consultation today to get started or to get any questions answered.
