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Florida Inheritance Tax

Florida does not have an inheritance tax per se. There is, however, a big US Estate Tax, sometimes referred to as the Federal Estate Tax.

What’s important when planning your Florida estate? Well, one aspect, and, I stress, only one aspect of good estate planning is tax minimization. That’s right. Minimizing any inheritance tax, or estate tax, is only one part of planning your estate. Remember, nobody in America has a patriotic duty to pay more taxes than you are required to. In fact, many Florida residents higher Florida CPAs, Florida accountants, and Florida tax lawyers, to make sure they make use of all legitimate deductions and credits in the US tax code. That’s perfectly all right.

For Florida residents, and Florida citizens, the good news is that the does not have a Florida inheritance tax or an estate tax. The bad news is that the United States federal government does have an estate tax. Sometimes referred to as the “death tax”, or “inheritance tax”, what is the inheritance tax or estate tax? We refer to it as the estate tax, which may also be called a transfer tax . There is also a “generation-skipping transfer tax” which may tax gifts to grandchildren, or people who are two of more generations below the maker of a gift. This is also referred to as the “GST” tax.

The United States government, through the Internal Revenue Service, or IRS, www.irs.gov, taxes you on your ability to give away your property. This may come as a shock to many Florida taxpayers. Put another way, the United States government, through laws enacted by Congress and signed into law by the president, has a whole set of laws which govern the taxability of gifts. Do you mean that I have to pay a tax if I make a gift? Potentially, yes.

The IRS, which is actually part of the Treasury Department, enforces all rules and procedures for all sorts of federal taxes, including the estate tax, what some people call the inheritance tax. Since the government might tax you on a gratuitous transfer, or a gift, you need to know what may be taxed as a gift and what may be taxed when you died. To simplify all of this, a gift made during life may be taxable, technically, but not taxed. Likewise, at death when you leave your property, whether through a trust or through your Florida estate, all of your assets which pass when you die may be taxable and may be subject to the estate tax.

So, gifts made during life, also called “inter vivos” gifts, may be subject to the US gift tax. Gifts made during your life were supposed to be reported on a federal IRS form, the federal form 709. This is sometimes referred to as the gift tax return. This is different than the US estate tax return which is form 706. When you leave assets at your death, those are reported on the estate tax return because they may be subject to the estate tax. On the estate tax return, your accountant, or your Florida tax lawyer, will add up all lifetime gifts, so that they are coordinated with any estate tax which may be due. The estate tax return, for a Florida resident or any US citizen or resident alien, who dies is due to be filed nine months after the date of death. A six-month extension may be requested and is typically granted by the IRS.

Certain “annual exclusion gifts” are free of gift tax. Think of these as annual gifts which are free from gift tax. For 2014, the amount of a gift which you may give away per person, per done, was $14,000. Want to give $14,000 to each of your 10 grandchildren? Congratulations! You just made a $140,000 tax free gift. There is no limit to the number of recipients of your generosity. Also, a Florida resident, or any resident of the United States, may pay an unlimited amount of educational and medical expenses —free of the US gift tax. So, if you have five grandchildren attending prep school, at $30,000 a year, each year you can make a gift of $150,000 free of gift tax. College? Sure. Graduate school? Of course. What if your child goes to four years of prep school, four years of college, two years of graduate business school, and three years of law school, each at $40,000 a year for tuition? Congratulations you just made a gift tax-free gift of $520,000! Don’t pay your kids, however. Pay the service provider, such as the educational institution, or the hospital, directly. This is an important rule which is hard and fast. If you gave your son or daughter a check for $520,000 and said “go ahead and pay all your educational costs”, you just made what may be a taxable gift. Ouch! But paying for tuition directly to the educational institution, and not to your child, makes it a tax-free gift. Why? Because that’s what the US tax code says. Also, gifts between spouses, those who are legally married, are not subject to gift tax. Give your spouse as much as you like without fear of paying gift tax. (Although, there may be other estate planning reasons why you do not want to give too much to your spouse.)

For the estate tax, a Florida resident, or for that matter, any United States citizen or resident alien may leave an estate with a value of up to $5,340,000— free of US estate tax, or inheritance tax. That’s right, there is no estate tax for the vast majority of US citizens. If you have $5 million or less, congratulations: no estate tax.

The real challenge for Florida probate lawyers, for Florida citizens who have a few bucks is not tax minimization anymore. It was years ago, when the amount of money that you can leave free of estate tax was considerably smaller than $5 million. But with new tax legislation, the $5 million exemption means that the vast majority of Americans will not pay an estate tax when they die. This means that the focus for Florida probate attorneys, Florida estate planning attorneys, needs to turn from tax minimization, which is now “easy” to wealth administration.

This sounds pretty simple right? Well, many probate disputes, and trust disputes, some estate planning litigation, occurs when a lifetime gift goes wrong. Such as when you make a transfer in trust for family members, and it doesn’t work out as planned. In addition, sometimes there are litigation issues which surround the overpayment of gift tax or estate tax or federal income tax. Some areas of the tax law, like the generation-skipping transfer tax, or the federal income taxes you of trusts and estates, may not be completely understood. Most residents, quite frankly, don’t want to pay a dime more in taxes than they have to.

For taxable estates, a common issue which can involve litigation, surrounds or involves, who is going to bear the brunt of the estate tax? Who pays the estate tax? What if a $5 million life insurance policy goes to a dead Florida resident’s boyfriend? The entire estate goes to the Florida resident’s children, which has $3 million in it, but the $3 million is needed to pay legal fees, estate administration expenses, Florida probate fees and costs, and, oh yes, the estate tax on the $5 million life insurance policy that goes to the boyfriend. Did the Florida resident who just died really intend to let the boyfriend inherit $5 million free of estate tax while her own kids inherit less? How is the US estate tax apportioned? Florida estate lawyers, and Florida probate litigators, and Florida estate litigators, may deal with the apportionment issue. Many Florida estate plans have a common provision in a Florida revocable trust which says that the “residue” of the trust pays all the estate taxes. In other words, everything that’s left over in the Florida trust, typically goes to family members, and is also responsible for paying all of the estate taxes. Joint accounts, like joint bank accounts, annuities with a beneficiary designation, and life insurance proceeds, don’t fall under the residue of the Florida trust. These beneficiary assets, sometimes called “will substitutes”, are inherited by the named beneficiary– outside of the trust, and outside of the Florida probate process. That means that those beneficiaries could inherit all that wealth estate tax-free. …..Making the residue, or the residuary beneficiaries of the Florida trust, typically family members or children, pay all the estate tax. This is often not intended, and, some would say, unfair for family members and trust beneficiaries.

How will your money, your assets, be administered or mismanaged after you’re gone? How will your hard earned money be left from your estate, and managed? Everyone seems to have an estate these days. Most people have a car or two, a house, an IRA or retirement account, some life insurance benefits, personal property and maybe a small brokerage account, or some stocks and bonds. Over a lifetime, it’s easy for an American estate to approach and exceed $1 million dollars.

Since most Americans are not subject to an estate tax, what do they really need to worry about? Well not much— necessarily.

But if you do care about how your money is spent, or not spent, invested, mismanaged, or misused, when you’re dead, consider this: talk to your Florida probate lawyer or your Florida estate planning lawyer about how you can leave your wealth, your money, so that your loved ones, your family, your chosen beneficiaries benefit from your money, but are not burdened by it. Want your spouse, or widow, taken care of, to the exclusion of everyone else, when you die? Do you want your grandkids’ education paid for? Do you want to be able to buy a house for your child? If you want any control over how your money is spent after you’re gone, talk to your Florida estate planning attorney, someone who prepares Florida wills and trusts, about placing restrictions and guidelines, and instructions, on your wealth— perhaps placing some or all of your assets in a Florida trust. Do it now, while you’re still living, and competent. After you’re gone, you will not have a say in how your money is spent, or misspent. Used, or misused.

Protect your Inheritance.
Protect Your Wealth.
Protect Your Rights.

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