Is There A Tax Credit For Estate Planning In Florida?

When creating an estate plan, one of the things you must be concerned about is knowing how much taxes your beneficiaries have to pay. Do they need to pay an inheritance, state, or federal tax? Knowing these before you start is best, so you must consult an estate planning attorney in Coral Gables FL, to guide you through the process. They have the skills and experience to give information to make your plan successful and protect your best interest.

What Is Estate Planning?

Estate planning is a legal process that distributes your assets when you pass away by using a tool, such as a will, trust, or power of attorney (POA). It includes creating a plan for end-of-life health care and decision-making, transferring assets to the beneficiaries, protecting assets from creditors, paying estate taxes, and more. Talk to an estate planning lawyer in Coral Gables FL, to choose the most suitable for your needs.

The estate planning goal is to ensure that your wishes are carried out when you die regarding your assets and property, including their distribution among your beneficiaries. With this in place, your surviving family can avoid a lengthy and costly probate process. When you use the living trust, your estate may not undergo a probate process and enjoy tax credits for your beneficiaries.

Is There A Tax Credit In Florida?

What is a tax credit? It is a financial benefit permitted by the U.S. government to reduce the amount of taxes you have to pay. A tax credit lowers the amount of taxes dollar-to-dollar from your income. For example, if the total amount of your tax on your return is $2,000 and you have a tax credit of $1,500, then you only need to pay $500. So how does tax credit work on estate planning in Florida?

Before December 31, 2004

Due to the federal tax change, it abolished Florida’s estate tax on December 31, 2004. Before this date, federal law allowed a tax credit on estate tax returns. Conversely, Florida’s estate tax is based on this federal tax credit so when it was removed, Florida’s estate tax credit is no longer applicable.

On Or After December 31, 2004

The federal government changed the tax credit to an allowable deduction so by December 31, 2004, Florida does not impose estate tax credits anymore. Hence, the decedent’s estate will not be subject to estate taxes on or after that date. Then the federal government replaced the tax credit with a deduction for the state estate taxes. Ask your estate planning attorney in Coral Gables FL about tax deductions to give you additional clarifications.

Some examples of allowable deductions from the gross estate include expenses for funeral services, administration expenses, existing claims against the estate, certain taxes, mortgage liabilities that are unpaid, or any other liabilities caused by local laws and regulations. There are also no inheritance and gift taxes imposed on Florida residents. This makes Florida a tax-friendly state for its people. So start preparing for the future now with the help of your estate planning attorney in Coral Gables FL.

Federal Estate Tax In Florida

Florida may not be imposing any tax on an estate, but one can still be subject to federal estate tax. In 2023, individuals whose estate is below the $12.92 million threshold will not be liable to federal tax. In 2022, the threshold was $12.06 million. Otherwise, if an individual’s estate is above the threshold, they shall be subject to estate taxes.

Estate Tax Threshold

The highest estate tax rate an individual may be subjected to is 40%. This is imposed when an individual has over 1 million to the threshold. Moreover, spouses can have a total of $25.84 million threshold in total upon their death. In terms of federal estate tax exemption, an approximate amount of $13,000,000 is allowed. This can be used by U.S. citizens after their death for estate tax exemption. The amount shall also increase during times of inflation.

Estate Tax Exemptions

Federal laws on estate taxes also state that the exemption imposed can be applied against gifts while the decedent is still alive, and those bequests after their death through their will or trusts. Concerning the exemption on lifetime gifts, such shall be deducted from the tax credit allowed upon the death of the decedent. Talk to your estate panning attorney in Coral Gables FL to give you more information about federal estate tax exemptions.

Deceased Spousal Unused Exclusion

In terms of spouses, if the deceased spouse has a remaining part of the $13 million exemption, the living spouse can use such excess portion. This excess credit is also termed the “Deceased Spousal Unused Exclusion (DSUE).” Hence, married couples in Florida can have a total federal estate tax exemption of $26 million. Florida citizens still find this a concern because some families own properties that are more than $26 million.

To ensure that the DSUE is maximized, the living spouse shall file the federal estate tax return Form 706, at the time of the death of their spouse and correctly elect DSUE in the said form. Form 706 preparation can be complex to accomplish even for families who have a small amount of estate. Fees for legal and accounting services may also be paid upon filing. In general, Form 706 must be filed by an individual subject to the estate tax due within 9 months of the death of the decedent. The state allows a 6-month extension if the taxpayer will file for one.

Overall Tax Picture

Overall, Florida is a state that imposes minimal taxes. In fact, the state does not set any state income for its citizens. This means that the citizens enjoy an income, social security, and pensions that are tax-free. This indicates that the state is very convenient for people in their retirement phase and have estate planning to secure their assets. Talk to your estate planning attorney now to start drafting your documents and protect your best interests.

Frequently Asked Questions On Estate Taxes

Estate taxes and other property transfer taxes at the time of your death may be too complicated to deal with even if you have an estate planning. There are complex topics that are hard to understand without proper research or help from a competent estate planning lawyer. To help you understand estate taxes better, here are the answers to some of the most frequently asked questions regarding estate taxes when planning your estate.

What Is The Limit Of The Inheritance To Not Pay Taxes?

In Florida, there is no inheritance tax imposed against heirs when they receive their inheritance. However, there are still federal taxes due to properties inherited in Florida. But most of these properties are still under the exemption limit under federal laws.

What Is The Common Scenario When Inheriting A House?

If you inherited a house in Florida, you shall be given all the legal rights and be responsible for its totality. You should also check if the house has adequate insurance. You may qualify for the homestead exemption in Florida if you decided to occupy the house immediately. If the heirs decided to sell the house, they will be liable for taxes based on the increased value of the asset from the day of the decedent’s death to the date the property is sold.

Is There A Difference Between Estate Tax & Inheritance Tax?

The clear difference between estate tax and inheritance tax lies in the subject it will be imposed. Estate taxes are imposed on the properties of the decedent, while inheritance taxes are imposed against the heir receiving the property. Hence, payment of estate taxes will come from the property owned by the decedent before their death, while the heirs will need to pay inheritance tax upon distribution.

What Is Generation-Skipping Transfer Tax?

A generation-skipping transfer tax is a kind of transfer tax that is imposed when a transfer is performed to a “skip person” in addition to a gift or estate tax. A skip person is someone with two or more generations below the individual’s generation giving the gift. In cases where no distributions from a trust can be performed to “non-skip” individuals, the trust shall be considered as a distribution made to a skip person.

How Can An Estate Planning Lawyer Help?

Even though Florida does not impose estate taxes anymore, there are still obligations that you can be made liable to. And most of the time, taxes can be very complicated to deal with. Hence, you need someone highly knowledgeable to help you go through every detail of the taxation system. An estate planning lawyer focuses on how you can plan carefully while taking into consideration other important matters such as taxes.

An estate planning lawyer will inform you about federal estate taxes and how you can reduce if you are subject to them. They will provide sound legal advice on how you can protect your heirs on inheritance taxes as well. You need to equip yourself with knowledge of certain tax exemptions on estate and inheritance taxes, so future problems can be avoided.

Estate planning lawyers will also help you in preparing important documents when it comes to estate taxes, such as the forms needed to be filed with your state government. A simple error in preparing them can lead to delays and future problems. Regardless of the amount of your property, it is essential that you carefully plan your estate. This will ensure that your family is taken care of and you will prevent them from being liable for a huge amount of taxes upon your death.

The Estate Plan

Based in Coral Gables FL, The Estate Plan can assist you with different estate planning services. The firm believes that effective estate planning takes care of the best interests of its clients. Estate planning lawyers at The Estate Plan help their clients to attain financial security while protecting their legacy. This includes thoroughly explaining the process, including estate taxes. The firm gives its best efforts to simplify the idea of estate taxes to make it more comprehensive and understandable.

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