If you live in the state of Florida or have assets in the state of Florida, I have some good news for you. There is no Florida estate tax. Florida is one of 38 states that does not assess estate tax.
But don’t forget about the federal estate tax rules. In this guide, we will break down the estate tax rules and give you a few tips along the way.
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Florida estate tax
It does not matter how large or small the estate is, no estate tax is levied. But don’t forget about the federal estate tax. If your estate is larger than the annual exemption amount, you could owe tax.
But the good news is that it is only assessed in one out of every 100 estates. So most people won’t have to worry about it.
What is the estate tax and how is it collected?
Just like it sounds, estate taxes are assessed by the IRS on the net assets of a person who has recently passed away. But any state assessment and the federal assessment will allow you to exclude a certain amount. This is also called the exemption amount or lifetime credit.
Some people call it the death tax. Whatever you happen to call it, there is a lot of planning that needs to be done in order to limit any exposure to it.
Estate tax is different from what is called the inheritance tax. This is an assessment on funds after they’ve been passed on to the beneficiaries. The federal government does not have an inheritance tax, but some states do.
Gift tax and inheritance tax
More good news for you. There is no inheritance tax in the state of Florida but you could be assessed inheritance tax based on assets owned in other states.
So if you live in a state that has an inheritance tax you may owe tax even though the assets were in the state of Florida. But again, most states have a minimum threshold and most people will fall below the threshold.
Florida also has no gift tax. The federal government allows $15,000 a year to be gifted to any friend, relative or associate.
Federal estate tax
The federal state tax has been around for decades, but has changed constantly over the years. We also have some pending estate tax changes that are coming in the near future. Make sure you pay attention to changes at the federal level in addition to the state you reside in.
The federal estate tax is simple in nature, but complex in the calculation. You must calculate your gross estate and then you can deduct liabilities and debts, administrative expenses, and funeral and other costs. Whatever is remaining must be below the federal exemption amount. If it is, there is no filing requirement. But if not you must file a tax return and pay the estate tax.
The federal estate tax is imposed on the net fair market value of the deceased person’s estate. This includes the probate estate and non-probate assets such as life insurance, pension, and retirement assets and property owned in joint tenancy.
The probate estate is the property administered by the state probate court process to pay administrative expenses and distribute the property to creditors and beneficiaries of the decedent. The decedent’s will controls the distribution of probate property, or if none, by the state laws of intestacy and by the probate laws of the state or states in which the probate estate is administered.
Probate property may include real property (land, buildings) or personal property (stocks, bonds, etc.). The federal estate tax is imposed after the application of the unified credit. The Credit permits a person to transfer a certain amount tax-free. The estate tax is integrated with taxes on lifetime giving.
The estate tax is imposed upon the amount of the taxable estate and the amount of adjusted taxable gifts made during the decedent’s lifetime. Adjusted taxable gifts are gifts made by the decedent after December 31, 1976, other than gifts that are includable in the decedent’s gross estate. There are exclusions from taxable gifts, and these will be discussed below. The applicable credit amount is applied both to adjusted taxable gifts made during a lifetime and the taxable estate that passes at death.
How to Eliminate or Avoid the Florida Estate Tax
Since Florida does not levy an estate tax, you don’t have to worry much at the state level. But federal estate taxes are another issue. There are some strategies that you can use to minimize any estate tax liability. Make sure you address the following and discuss with your CPA:
- Grantor Retained Annuity Trusts (GRATs)
- Crummey Trusts
- Charitable Remainder Trusts (CRUT)
- Grantor Retained Income Trusts (GRIT)
- Grantor Retained Unitrusts (GRUTs)
- Qualified Terminable Interest Property (QTIP)
- Intentionally Defective Grantor Trust (IDGT)
- 529 Plans
- Direct Medical and Tuition Payments
- Gifts Below Annual Exemption
- Qualified Personal Residence Trusts (QPRTs)
- Minor Trusts
- Donor-Advised Funds
- Irrevocable Life Insurance Trust (ILIT)
- Special Valuation of Farms and Businesses
- Family Limited Partnerships (FLPs)
- Dynasty Trusts
- Charitable Gift Annuity
Florida is a very popular place and thousands of Americans are moving to the state. It has a reputation for being a low tax state. There is no income tax so retirement income, Social Security, and business income is excluded. Retirees always do well in the state of Florida.
The state has a sales tax of 6%. This will be combine with local taxes to approximate 8%. This is consistent with most states. However, property taxes tend to be a little bit on the high side. Just make sure you compare the entire tax picture before you move to the state.
Since Florida has no estate tax, gift tax or inheritance tax, there isn’t much tax planning that needs to be done at the state level. But make sure you review your federal estate situation. A qualified CPA or estate attorney can assist you in these complex matters.