Florida residents setting out to prepare the legal documents necessary to direct the disposition of the property they must leave behind someday often have questions about the tax implications of the various estate planning tools available. Individuals who have spent a lifetime carefully building a financial legacy they hope to eventually leave to their children or grandchildren may be especially eager to learn what they can do to legally avoid estate tax, as many people have heard of this term and fear that an estate tax may substantially reduce their children’s inheritance. The good news, for many estate planners, is that Florida no longer imposes its own estate tax. The less-good news is that the estates of Florida residents will still be subject to the federal estate tax if their total value exceeds the threshold updated annually by the Internal Revenue Service (IRS). There are several possible exemptions and deductions that may help to reduce the overall size of the estate once calculated, but taking advantage of the options most appropriate to your situation may need careful preparation. To discuss the tax implications of your estate planning strategy with an experienced Florida estate planning attorney, call Roulet Law Firm, P.A., and schedule your personalized consultation. Reach our Florida office today by calling 941-909-4644. Or you can fill out the contact form on this page and a member of our team will reach out to schedule your consultation.
Tax Implications of Large Estates
Most people, most of the time, adopt a “more is more” approach to money. Having resources on hand to ensure financial security, to enjoy discretionary spending from time to time, and eventually to leave behind a final gift to loved ones is generally considered a “good” thing – an outcome many people work hard all their lives to achieve. When it comes to federal estate tax calculations, however, accumulated wealth can easily add up to “too much of a good thing.” This is because “liability” for federal estate tax is determined by the size of the estate.
Gross Estate
The IRS explains that the “taxable estate” is computed by first calculating the “gross estate” – the total value of all assets in the individual’s possession at the time of their death – and then subtracting from that sum any applicable exemptions and deductions. There are a number of the latter, with property passing directly to a surviving spouse and property left to qualifying charities among the most notable. The IRS separately notes, however, that the gross estate calculation will likely include both probate and non-probate assets; property placed within a “grantor” trust, as defined by the IRS, may avoid probate but still be part of the estate for purposes of tax calculation.
Taxable Estate
The total value computed for the estate, once all exclusions and deductions have been duly accounted for, is known as the “taxable estate.” If this amount exceeds the federal estate tax threshold for the year of the individual’s death, then the estate will be subject to the federal estate tax, which must be paid before any disposition of property indicated in the decedent’s Last Will and Testament (Will) can be made. An estate planning attorney with Roulet Law Firm, P.A. may be able to assess the tax implications of your current estate plan and work with you to find legal strategies for limiting the potential tax liability of your estate.
Tax Implications of Common Estate Planning Designs
Over the past few decades, the advent of the “user-friendly” internet and the rise of search engine technologies have combined to make it easier than ever for curious individuals to find simple answers to their estate planning questions. Digital platforms excel at facilitating rapid access to information – and to its counterpart, misinformation. By contrast to disinformation, which is deployed in a deliberate attempt to mislead, misinformation is often the result of unintentional error, sometimes caused by inadequate attention to context. Even statements and explanations that are fully accurate and indeed helpful in one setting may be misleading and potentially harmful when a person with limited background knowledge attempts to apply what they have just found to their own situation, without accounting for differences in state laws and their personal circumstances. An estate planning attorney will often be in a position to help you review any information you have found online and in many cases can suggest complementary strategies or adjustments that could help you apply that information in a way tailored to your personal needs.
Trusts
Many people find information online that suggests forming a trust is the leading strategy for reducing estate tax liability. However, this commonly-held perception is only partially accurate, and its usefulness will depend on several factors. The truth is that a trust can indeed be a powerful and effective tool for a number of estate planning purposes, including strategies designed to reduce the taxable value of an estate – but only some types of trusts will work for this purpose.
Assets held in a revocable grantor trust will be treated as part of the taxable estate because this type of trust has a “pass-through” tax structure; the grantor’s estate will be responsible for the estate tax on these assets once the grantor has passed away, just as the grantor in life will have been responsible for taxes on any income generated from the trust. Assets placed in an irrevocable trust, on the other hand, may be excluded from the estate tax calculation, but this is precisely because the grantor of an irrevocable trust loses control over assets placed in the trust once the trust instrument has been executed. Either type of trust may be appropriate in a given situation, but the tax implications of these estate planning tools can differ, depending on a variety of factors, including the value of non-trust assets in the estate and any exclusions based on a spouse’s right of survivorship.
Surviving Spouses: “Elective Share” vs. Marital Deduction
Many Florida residents may be familiar with the rights of a surviving spouse through the importance state law places on what is known as the “elective share” – essentially, a provision of probate law that entitles a widowed spouse to a minimum portion of their deceased partner’s estate. The “elective share of the surviving spouse” is a common feature of probate codes, although the specific requirements may differ somewhat from state to state. In Florida, § 732.201 Fla. Rev. Stat. (2024) holds that a surviving spouse has the right to take an “elective share” of up to 30% of the “elective estate,” which is calculated by applying the somewhat laborious set of criteria enumerated in § 732.2035. Absent a waiver, the surviving spouse’s right to this minimum portion of the deceased partner’s estate supersedes any alternative provision made in the decedent’s Will that might designate to the surviving spouse a smaller percentage of the estate (or nothing at all).
While 30% of the estate is the minimum a surviving spouse is entitled to receive under Florida law, there is no corresponding maximum limit. The proportion of your estate that you choose to leave to your married partner can have significant tax implications because property passed “outright” from the estate of a decedent to the individual’s surviving spouse is exempt from federal estate tax under the marital deduction. As Cornell Law School’s Legal Information Institute (LII) explains, the marital deduction does not necessarily obviate estate tax altogether; rather, the estate tax must be paid out of the widowed spouse’s estate once he or she passes away. Because the federal estate tax is only charged on estates whose total value exceeds the minimum threshold for the year of the decedent’s death – $13,610,000 for 2024, up from $12,920,000 in 2023 and $12,060,000 in 2022, according to the IRS – strategically calibrating the total value of assets left to a surviving spouse vs. property left to other designated beneficiaries may offer some couples a way to reduce their overall estate tax liability, depending on the circumstances.
Speak With a Florida Estate Planning Attorney Experienced in Managing Complex Tax Implications
The federal estate tax represents a significant concern for many Florida residents as they prepare their estate plans. Although Florida does not levy an estate tax of its own, the federal tax can substantially reduce the value of the inheritance you are able to leave to your children. Careful planning may help to reduce your estate tax rate, or in some cases place the total value of your taxable estate below the federal threshold. To discuss the potential tax implications of your current estate plan and seek assistance reviewing your options for managing estate tax liability in Florida, schedule a legacy planning consultation with an experienced attorney from Roulet Law Firm, P.A. by calling our Florida office at 941-909-4644 today. Or you can fill out the contact form on this page and a member of our team will reach out to schedule your consultation.
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