Most people can go through the estate planning process without giving a second thought to taxes. No matter their net worth, the threshold for estate taxes is high enough that it is unlikely to impact them. Yet, whether through hard work, good luck or both, you might have built up a sizable estate, to the point where you have concerns about its potential tax burden. Not only is it important to understand whether your estate will pay taxes down the road, it is crucial – if it will – to know how you can reduce its tax bill.
How taxes could affect your estate in Florida
Florida is often considered a tax-friendly state, especially for older individuals. This is because, unlike many states, Florida does not impose income taxes on its residents. If you are a retiree – or plan on retiring soon – any income you derive from pension plans, retirement accounts or Social Security will avoid taxation. Furthermore, after you die, Florida will not levy state taxes on your estate, nor will it levy inheritance taxes on your beneficiaries.
Yet, even as a Florida resident, you are still subject to federal estate tax laws. These taxes affect only 0.2% of estates. But yours could face them if its value exceeds $11.7 million, or $23.4 million if you are married.
How to minimize the impact of the federal estate tax
If the value of your estate puts it at risk of federal taxation once you die, you have ways to reduce – if not eliminate – this burden. One common way that people minimize their estate’s taxable value is by making gifts during their lifetime. If you are single, you can make gifts of up to $15,000 per recipient without paying federal gift taxes. If you are married, this amount increases to $30,000. Keep in mind, though, that any gifts made within three years of your death will still count as part of your estate’s taxable value.
Alternatively, you may want to set up a trust that protects your assets from taxation. Many different types of trusts exist, and the right one for you will depend on your needs and intentions. Setting these up alone can be complex, though, and you will want to have an estate planning attorney guide you through the process.
It is unlikely that your estate’s value will diminish due to federal estate taxes. Yet, as a precaution, you will want to take steps to minimize this risk and improve the odds your assets will transfer to your beneficiaries tax-free.