Will My Family Need to Pay an Estate Tax in Florida?

In 2024, the federal estate tax ranges from 18% to 40%, depending on how much the value of the estate exceeds the current exemption limit of $13.61 million.

Known as the “death tax,” an estate tax is applied to assets inherited by others when you die. In addition to the federal tax, twelve states and the District of Columbia have their own estate taxes, says a recent article from CNBC, “What is estate tax and who pays it?” Florida does not impose a separate estate tax. A Florida estate lawyer can guide you on how the death tax will be applied to your estate.

Inheritance taxes and estate taxes are often confused. A beneficiary pays inheritance taxes, while estate taxes are paid from the decedent’s estate before any remaining property or assets are distributed to heirs.

One of the executor’s duties is to file an estate tax return. The value of the assets is usually determined by their fair market value.

The unlimited marital deduction means the surviving spouse is exempt from federal estate taxes.  However, the second spouse to die’s estate will need to pay estate taxes.

The current federal estate tax exemption ranges from 18% to 40%, depending on how much the estate is over $13.61 million. This historically high number will revert to $5 million (indexed for inflation) on January 1, 2026 unless the law makers change it.

Twelve states and the District of Columbia impose their own estate taxes. These include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Connecticut and Vermont have flat estate taxes. However, most estate tax rates increase with the total value of the assets. Florida does not have an estate tax, but Florida residents may still be responsible for Federal estate taxes. A Florida estate lawyer can advise you on whether or not your estate will have a Federal tax burden.

An experienced Florida estate planning attorney will help identify strategies to minimize or avoid paying estate taxes altogether. For instance, if you leave assets to a qualifying charity, that amount is deducted from the gross estate before taxes.

Gifting is a frequently used means of minimizing estate taxes. In 2024, you can gift up to $18,000 per individual without paying the federal gift tax and without the gift counting towards your lifetime gift exemption of $13.61 million. A married couple may give up to $36,000 tax-free combined.

Irrevocable trusts transfer control of an asset from the grantor to the beneficiary, protecting it from creditors and reducing the estate’s value. While rules vary from state to state, irrevocable trusts typically may not be amended, modified, or terminated without the beneficiary’s consent.

Contributions can also be made to 529 educational plans, which offer tax-free earnings and withdrawals for educational expenses. They are excluded from the taxable estate. However, the contribution can’t be more than $18,000 per year, or it will be subject to the gift tax. Each state sets its own contribution limits per beneficiary. Florida limits your total 529 contributions to $418,000 total, no matter how many beneficiaries that is spread between.

Most Americans don’t have to pay federal estate taxes. Still, many state taxes have lower exemption levels, so speak with your estate planning attorney to learn your estate’s tax liability and consider how to minimize it for your heirs. When you’re ready to begin your estate planning journey, book a call with Florida estate lawyer Carol Grant, P.A.

Reference: CNBC (Feb. 17, 2024) “What is estate tax and who pays it?”

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