You have spent a lifetime building up your assets and establishing yourself. Whether you make your money off of investments, a business you started or a salary, you have already paid taxes to the state and to the federal government on the money you earned. That’s one of many reasons why people find the concept of an estate tax so offensive.
Individuals pay taxes on their income, and then their heirs and family members may have to pay additional tax on the money they leave behind for loved ones. Estate taxes only impact those with substantial assets. The good news — for those who have large estates — is that it is possible to plan carefully and avoid, if not eliminate, estate tax liabilities for the people you love and hope to provide for in the future.
What size of estates are subject to estate tax?
The state of Florida no longer has a state estate tax. Individuals who die in Florida and whose estates must go through Florida’s probate courts will not have to worry about paying estate tax to Florida itself. However, the estate may be subject to federal estate taxes.
The amount of the total value of the estate will determine whether your heirs and family members have to pay state taxes on your legacy. Currently, the cut-off amount for estate taxes at the federal level is $11.8 million.
If your total estate will be worth that or more, you should engage in proactive planning to limit the tax liability related to your estate. Generally speaking, this means disbursing funds to family before you die or creating one or more trusts as part of your estate plan.
Reducing the assets in your name reduces estate tax liability
Both of the aforementioned strategies rely on the same method to avoid estate tax. Specifically, they limit the pool of assets in your name at the time of your death. Creating and funding a trust can leave you with control over your assets while also providing more options for your estate plan and reducing tax liability.
If, for some reason, a trust does not appeal to you, you may also consider gifting assets to your family members, loved ones, friends and heirs. Strategic gifts often make use of the maximum amount that is tax exempt for any given year. You can stagger the amount that you give to loved ones over many years or even decades with proper planning.
The right solution may be either of these two choices, a combination of both or a completely separate and new plan. Discussing your situation with an experienced Florida probate attorney is a good first step toward protecting your assets from duplicate taxation.