Estate Tax Planning in Florida

Historically speaking, the federal estate tax is an excise tax levied on the transfer of a person’s assets when they pass away. In actuality, it is neither a death tax nor an inheritance tax, but rather a transfer tax. There are three distinct aspects to federal estate taxes that comprise what is called the Unified Transfer Tax: Estate Taxes, Gift Taxes, and Generation-Skipping Transfer Taxes. Legal planning to avoid or minimize federal estate taxes is both a prudent and an important aspect of comprehensive estate planning.

The federal estate tax exemption for 2013 was $5.25 million and for 2014 is $5.34 million, thanks to inflation indexing (and a nearly “automatic”* $10.68 million for married couples who follow very specific requirements at the death of the first spouse) with a 40% maximum tax rate.

Gift Taxes & Generation Skipping Transfer tax Exemptions

Gift Tax

The unified credit concept ties the gift tax and the estate tax together. The lifetime gift and estate tax basic exclusion amount for 2014 is $5.34 million, as indexed for inflation up from $5.25 million in 2013. Taxpayers use a unified estate and gift tax credit to offset the transfer taxes that would otherwise be paid on the transfer of assets up to the exclusion amount of $5.34 million. If a taxpayer uses their transfer tax credit by making lifetime gifts, their federal estate tax exemption at death is reduced by the amount of the unified credit that was used during their life.

Note that annual exclusion gifts do not reduce the unified credit. The annual gift exclusion is currently $14,000. Married couples can combine their annual gift exclusion amounts to make tax-exempt gifts totaling $28,000 to as many individuals as they choose each year, without reducing their available unified credit.

Generation-Skipping Transfers

The generation-skipping transfer tax (GST) is levied in addition to gift or estate taxes on transfers made to a “skip person.”

A “skip person” is a person deemed to be two or more generations below the generation of the person making the gift to them. A trust will be considered a skip person if no distributions from that trust can be made to “non-skip” persons.

For 2014, the generation-skipping tax exemption mirrors the federal estate tax exemption amount and tax rate ($5.34 million and 40%, respectively). Additionally, the generation skipping transfer tax allocation rules continue through 2014.

Florida Estate Taxes

Florida’s estate tax system is commonly referred to as a “pick up” tax because Florida picks up all or a portion of the credit for state death taxes allowed on the federal estate tax return (IRS Form 706 or 706NA). Since there is no longer a federal credit for state estate taxes on the federal estate tax return, there is no longer basis for the Florida estate tax. Florida has neither an estate tax (a tax paid by the estate) nor an inheritance tax (a tax paid by a recipient of a gift from an estate).

To stay informed about legislative developments and how they may affect your estate planning strategies, be sure to visit this website often, subscribe to our monthly e-newsletter, and follow my blog. If you are concerned about the tax liabilities created under your current estate plan, please call our office to schedule a consultation immediately.

Probate is one manner in which estate assets are transferred after death. Since probate can be a lengthy, costly and public process, many people choose to avoid it. Without proper probate avoidance planning, the state will require a probate court proceeding for state residents or those who owned assets in the state. During probate, assets are managed, debts are paid, tax returns are filed along with various court documents, and the estate assets are distributed.

In the absence of any planning to the contrary, your estate will be distributed according to Florida's laws of intestacy. This so-called "default" estate plan might not reflect your wishes. However, if you do plan in advance, you can have your estate administered according to your preferences. A comprehensive estate plan may include a Last Will and Testament, Trusts, Powers of Attorney, Advance Directives and Health Care Documents, all supporting your legal, personal, investment and tax planning purposes.