Inheritance Tax versus Estate Tax
Sometimes you may hear people use inheritance tax and estate tax as the same thing, but they are slightly different. Inheritance taxes are the responsibility of the individual heirs. The estate tax is what the estate owes, and it must be paid before any heirs receive proceeds. The estate’s Personal Representative is the one who is responsible for making sure estate taxes are paid. Individual heirs pay inheritance tax, although some Florida Wills may have a provision that says to pay any inheritance tax out of the estate’s assets.
When Does Florida Estate Tax Apply?
The federal estate tax will only be applicable in estates that are worth over a certain amount. That figure will change, typically from year to year. For 2020, the estate tax is only due on estates that exceed $11.58 million in value. Because it is such a high threshold, most estates are not taxable.
Some people do make mistakes, though, in failing to count assets that could push an estate over the threshold. For example, maybe you think you only have ten million in assets. But what about investments, collectibles, artwork, antiques, etc. If you happen to be an art collector with some rare pieces, that could quickly push your estate over the threshold.
How to Reduce Your Risk of Estate Tax
There are several methods people use to eliminate or reduce their potential estate tax burden. The first is to give gifts. You are allowed to give gifts up to a certain amount each year without incurring taxes. There is no limit on the number of people you can gift to in a year, just up to a certain amount. However, there is an overall lifetime gift limit you need to be mindful of. If you exceed that, there is a gift tax. For 2020, that limit is $11.58 million. If you are married, it’s $23.16 million.
You can also set up an irrevocable life insurance trust. Life insurance proceeds typically aren’t taxable. However, once you pass away, they could be added to your estate. With an Irrevocable Life Insurance Trust, it transfers ownership to someone else, so there is no tax liability.
Another option is to consider charitable donations. You can set up a Charitable Trust and place assets in, which will be exempt from taxes. Depending on the terms of the Trust, it may transfer to your beneficiaries upon your death, or after a certain amount of time.
There are other options that can work to eliminate estate tax, like a Family Limited Partnership or a Qualified Personal Residence Trust.
Contact a Florida Estate Litigation Attorney
If you need assistance with a dispute during probate or trust administration, you need an attorney with experience in these types of disputes. This is not something an estate planning or probate attorney typically handles. To learn more about how we can help you resolve disputes during probate, contact Mark R. Manceri, P.A. today to schedule a consultation.