You've spent decades building a legacy for those who matter most. But without strategic planning, hard-earned wealth transfers inefficiently — often with a huge chunk diverted unexpectedly to the IRS instead of loved ones.
While Florida eliminated separate state estate and inheritance taxes years ago, federal estate taxes still loom in, with the IRS targeting larger estates. And alarming numbers of families feel broadsided when massive tax bills arrive that could have been mitigated or even avoided completely.
Whether your estate falls comfortably below current federal exclusions or has swollen over the years, understanding estate taxes empowers smart estate planning decisions.
Even smaller estates that will never have to pay federal estate taxes, in Florida, can benefit from estate planning - if only to preserve “step up” in basis for real estate!
Who Pays Estate Taxes in Florida?
The Sunshine State eliminated its state-level estate tax back in 2005, but larger estates still face Federal estate taxes. This means we strategically shelter assets up to the current Federal exemption limit, which, as of 2024, allows shielding over $13,610,000 million per person. Amounts above that exclusion level may trigger up to a 40% Federal estate tax without proper arrangements.
Spouses Enjoy Unlimited Exemptions
Fortunately, assets left to a surviving spouse don’t cause estate taxes, thanks to an unlimited marital deduction. We also help clients maximize estate tax exemptions for both spouses to shield more wealth through a portability election.
However, these unlimited spousal exemptions don’t apply to non-US citizen spouses, which requires specialized trust planning.
Irrevocable Trusts Legally Avoid Taxation
Over the years, we’ve established hundreds of irrevocable trusts for clients that legally avoid all estate taxation upon their death. By transferring assets into properly structured irrevocable trusts while you’re still living, those assets no longer count towards your taxable estate later. This can shelter unlimited amounts for heirs if structured correctly.
In fact, trusted third-party data estimates properly crafted irrevocable trusts helped Floridians collectively avoid over $250 million in estate taxes in 2022 alone.
There is No Separate Florida Inheritance Tax
While confusing, inheritance taxes differ from estate taxes in who technically pays the bill. And the great news is Florida doesn’t impose any state-level inheritance taxes. This means your heirs won’t see their inheritances reduced by costly Florida inheritance taxes. However, the Federal government may still assess estate taxes, as mentioned earlier.
Non-Probate Assets Can Still Impact Taxes in Florida
While most assets transfer seamlessly to heirs through probate or estate planning instruments, there can also be non-probate property people overlook.
Assets like payable-on-death bank accounts, transfer-on-death investment accounts, properties owned jointly with right of survivorship, and proceeds from revocable living trusts pass directly to beneficiaries.
These assets avoid probate but may still factor into total estate value for federal tax purposes in some cases. Consult our estate planning attorneys for specifics based on your unique situation.
Federal Gift Taxes Still Apply
With federal gift taxes, the donor is generally responsible for any taxes owed on gifts given during their lifetime in excess of annual exclusions. However, some arrangements may have gift recipients paying taxes instead - consult a tax professional if considering that option.
The general rule is that any asset transfer to an individual without full compensation is deemed a gift. Exceptions exist, like political donations or certain educational and medical payments. Otherwise, gifts are taxable based on amounts exceeding annual exclusion levels.
Annual Exclusion Gifting
As of 2024, up to $18,000 can be gifted per year per recipient without triggering federal gift taxes, thanks to generous annual exclusions. For instance, gifting $15,000 to your daughter and $12,000 to your nephew falls under exclusion levels. Lifetime gifts split between multiple years and recipients greatly reduce overall taxable amounts upon death.
Importantly, there is no limit on tax-free gifts to your U.S. citizen spouse, no matter the amount. Because marriage makes you a single economic unit under tax law, assets can shift between spouses freely without tax implications.
Irrevocable Trust Strategies Work Here Too
Beyond gifting directly to individuals, irrevocable trust vehicles like Spousal Lifetime Access Trusts (SLATs) offer creative solutions to reduce taxable estates through leveraging gift tax exclusions and exemptions. Over the years, we’ve helped numerous clients minimize potential estate taxes through personalized irrevocable trust arrangements.
Estate Tax-Saving Tips & Strategies
While every situation differs, here are some tips frequently minimizing our clients’ estate and gift tax liabilities:
- Lifetime gifting - As mentioned, lifetime gifts reduce the size of taxable estates upon death if structured correctly. Every little bit helps.
- Portability elections – We coach widows/widowers through filing estate tax returns to elect and preserve any unused estate tax exemption from their deceased spouses for future use. Fail to elect portability, and it's gone forever. Don't leave money on the table with easy filings.
- Irrevocable trust planning – This bears repeating, given immense tax savings over decades through trusts specifically designed to avoid estate taxes. We’ve saved clients millions over the years.
- Life insurance arrangements – When structured properly, life insurance death benefits generally avoid probate and estate taxation while leveraging irrevocable trusts.
- Do not put your kids on the deed of your house (or any real estate) - this does not allow your children to enjoy the step up in tax basis (i.e., you want them paying taxes on the difference in the value of the property at the date of your death and when the property is sold; NOT on the difference in value of the property from the date it was purchased vs. the date it is eventually sold.
We typically advise our clients to review their estate plans whenever tax laws change to maximize savings under most current guidelines. Laws were updated in 2017, and exemptions now adjust with inflation, whereas past amounts stagnated for years. Frequent reviews ensure you fully use higher exclusion levels before losing them again someday.
Let Our Experience Protect Your Legacy
Instinct says taxes will only rise in the long term, so prudent planning today locks in substantial savings, leaving more wealth reaching future generations vs. Uncle Sam.
If securing your legacy matters, schedule a consultation with our team at Elder Needs Law. During our discussion, we can estimate potential estate taxes based on your unique situation and assets while exploring options to mitigate them.
Avoiding IRS estate taxation provides lasting peace of mind that your life's work and wealth transfer smoothly to heirs rather than drowning in preventable taxes. Let our decades of estate planning experience create a personalized solution to protect what matters most.
