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How estate planning can help Florida residents avoid the death tax

On Behalf of | Apr 17, 2024 | Estate Planning |

Estate planning is an important undertaking for people in a variety of different circumstances. New parents create estate plans so that there is a guardian to care for their children in the event of an emergency. Those with valuable assets create estate plans to ensure the right people inherit their resources. People facing major medical challenges create or expand estate plans to name a healthcare proxy to handle decisions about their treatment if they become incapacitated.

The estate planning process often includes efforts to ensure as much of someone’s estate as possible transfers to their chosen beneficiaries. Estate taxes, which some people refer to as death taxes, can substantially reduce the value of the assets someone passes to their loved ones when they die. These taxes take priority over the rights of someone’s beneficiaries who are waiting to receive assets from the estate.

Do adults in Florida need to plan in specific ways to avoid or minimize death taxes?

Large estates could be subject to major tax obligations

Florida sees a large number of estates pass through the probate courts in part because of the large number of older adults and retirees living in the state. Only a small portion of those estates are usually at risk of taxes.

Florida does not assess or collect estate taxes, but the federal government does. Thankfully, the threshold for taxes is relatively high. In 2024, the total value of an estate must be $13.61 million or more for federal estate taxes to apply. That being said, if taxes do apply, they can have a devastating impact on the value of an estate.

The maximum tax rate for federal estate taxes is 40%. Without advance planning, those with multi-million-dollar estates could lose up to two-fifths of their assets to the federal government. Estate planning to address tax risk often requires changing the ownership of assets or intentionally diminishing the value of an estate before someone dies.

Gifts to beneficiaries and transfers into trusts are among the strategies people might employ when trying to minimize estate taxes. Addressing factors that could reduce someone’s legacy can be an important component of estate planning. Florida testators who know the possible risks can establish the  most effective documents and broader strategies given their circumstances.