Florida estate tax, also commonly referred to as “death tax,” is an interesting subject. It’s interesting because the state government doesn’t actually impose any estate or inheritance taxes. With that said, there are certain estates that are still eligible, and certain federal taxation laws may still apply on assets of a deceased individual.
The State of Florida remains one of the most tax-friendly states within the United States. In fact, Florida is one of seven states with no state income tax. Property taxes in Florida correspond to taxes throughout the nation and the state sales tax is set at 6% (as of 2019). These tax friendly laws within the “Sunshine State” attract an increasing number of residents yearly.
This article discusses the topic of estate taxes in Florida. Specifically, when an estate is eligible, how these taxes can be minimized or avoided, and other necessary details on the subject.
Throughout this article there’s a certain amount of “legal jargon” that’s necessary to appropriately present this information. To help our readers better digest this content, here are some commonly used terms with definitions to alleviate potential confusion. If you feel that you’re already fairly well versed in these terms, feel free to skip this section.
Decedent – Someone who has passed away.
Probate – The court supervised process of distributing someone’s assets after they die.
Administration – This refers to the legal distribution of someone’s assets in Probate Court after they pass away.
Personal Representative – Someone who’s legally appointed to oversee the distribution of assets from a deceased person’s estate.
Inheritance Tax – Money paid to the government by someone who inherited property or assets.
Estate Plan – Legal documentation that writes out someone’s wishes should they pass away or become unable to manage assets.
Beneficiary – Someone named within a will or trust that is eligible to receive a certain amount of someone’s assets after they pass away or become unable to manage their assets.
Florida Estate Tax Law
The Constitution of the State of Florida protects residents and all heirs from state taxes on the decedent’s estate. In other words, if your primary residence is in Florida your heirs will not pay Florida state taxes even if they live in another state. Of course, federal estate taxes may still apply to any inheritance. Some estates involve cash, IRA’s, CD’s, stock, life insurance policies, property, brokerage accounts, businesses, and other assets.
The “Boomer Generation” has reached retirement age and is looking for ways to protect income and investments. Many “boomers” worked in northern states with brutal winters and high state taxes. As a result, they are relocating to Florida due to the tax-friendly environment. For example, Florida does not tax the following:
- Social Security benefits
- 401(K)s and other retirement income
Also, Florida does not have an inheritance tax and there is no estate tax in Florida. Consequently, Floridians establish sound estate plans ensuring certain assets minimize or avoid the process of probate and pass directly to their heirs. You can read the article we wrote on the rules of probate in Florida for more information.
Florida does not impose an inheritance tax; but six states do levy a tax on your inheritance. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania will collect state taxes on an inheritance from estates in those states. So, Florida residents who inherit property from those states may have to pay an inheritance tax to those states. However, Florida residents should consult an attorney when they inherit cash or property to discuss any tax implications.
Many times beneficiaries are listed on accounts; other times beneficiaries have passed away, or have not been named. The distribution of an estate may be a complicated process and requires prior planning. So, it’s vital to consult an attorney that specializes in estate planning.
How An Attorney Can Help
The tax-friendly laws in the Sunshine State help to preserve assets; but even “friendly tax laws” require interpretation by a professional. The State of Florida does not have an inheritance tax or an estate tax. Yet, some estates may have to pay a federal estate tax. There are exemptions before the 40% rate kicks in and an attorney can provide advice on setting up your estate to minimize taxes.
An attorney may present ways to minimize future tax liabilities. Some clients distribute assets in the form of gifts throughout their life. Others may establish a specific type of trust. A lawyer that specializes in this area of law understands the monetary limits on yearly gifting.
Remember, the laws are very specific to each state. Seeking counsel from a knowledgeable probate and estate attorney helps protects you, your family and your assets from Florida estate tax.