“Our new Constitution is now established and has an appearance that promises permanency, but in this world, nothing can be said to be certain except death and taxes.” This famous quote by Benjamin Franklin is never more applicable than when discussing estate taxes. What are estate taxes? These are the final taxes that could be taken out of your estate before your intended heirs inherit. Understanding your potential estate tax liability can help you properly plan your will and estate to ensure your assets can be distributed as you intend.
What Are Estate Taxes?
An estate tax is a payment the government imposes on someone’s estate after passing away. Sometimes it is referred to as a “death tax,” but this is not the legal term for the tax. An estate tax is not the same as an inheritance tax. Estate taxes are levied against the deceased’s estate, while inheritance taxes are levied on the deceased’s heirs.
Florida Does Not Have an Estate Tax
The Florida Constitution protects its residents from having to pay an estate tax. The state’s estate tax was abolished in 2004. The federal law used to allow for a credit for paying a state’s estate taxes when filing a federal estate tax return. However, the federal law was changed so that the credit became a deduction. The Florida law was based on the federal credit, so when the credit was eliminated, the Florida law was no longer relevant or applicable. However, you may still be liable for estate or inheritance taxes despite Florida no longer having an estate tax.
1. There Is a Federal Estate Tax
Despite there being no Florida estate tax, you may still have to pay a federal estate tax. The federal estate tax applies if your estate value is above $12.92 million. As of 2023, the portion of the estate that is above the $12.92 million threshold is subject to the federal estate tax. The IRS uses the fair market value of the assets at the time of valuation. This could mean that assets that you own today may not surpass the threshold, but by the time you die, they do.
There is an unlimited deduction that allows for the unrestricted transfer of assets between surviving spouses. However, the assets will become taxable when the surviving spouse passes away.
2. Other State’s Estate Tax
If the deceased lived in or owned property in another state, they might owe estate taxes in that state. Just because someone retires to Florida, lives in Florida part-time, or dies in Florida, does not mean they are completely exempt from the laws of another state. Because Florida is a state known for being tax-friendly, many retirees choose to live here. However, they may still have liabilities in the state they came from.
You can be liable for another state’s estate tax while not qualifying for the federal estate tax. These are separate entities. Currently, 12 states and the District of Columbia impose an estate tax.
3. No Beneficiary
By listing a beneficiary, some accounts can avoid inclusion in the estate and probate process. If no beneficiary is listed, or the beneficiary pre-deceases the individual, then the account defaults to inclusion in the estate. This can have an unexpected effect on estate tax liability. These types of accounts are typically intangible assets, such as stocks, other investments, bank accounts, or life insurance.
Speak With an Estate Lawyer
If you are unsure of your potential estate tax liability, speaking with a lawyer could provide much-needed clarity. Speaking with an estate planning lawyer can help you make the necessary plans to protect your assets. You worked hard for what you acquired in life. It should go to the people you care about most, not paying estate taxes.
Schedule a consultation with an estate planning lawyer to discuss your estate’s potential tax liability.
