Florida’s Lack of Estate Tax: A Closer Look

Florida stands out as one of the 38 states in the United States that does not impose an estate tax, making it exempt from state-level estate taxes regardless of the estate’s size. However, it’s essential to note that the federal estate tax may still apply. Those concerned with estate planning or any other financial planning matters might find it beneficial to seek the expertise of a financial advisor.

The Historical Context of Florida’s Estate Tax

As of now, Florida does not enforce an estate tax, a stance it has maintained since 2004. This change came about when the federal government shifted from offering a state-level death tax credit on federal tax returns to allowing a deduction. Since Florida’s estate tax was entirely dependent on this federal credit, the state found it unnecessary to continue with its own estate tax once the credit was abolished. Thus, estates of individuals who passed away on or after January 1, 2005, are not subjected to any estate tax in Florida.

 Understanding the Estate Tax

Estate tax, often referred to colloquially as “death tax,” is a tax imposed by the government on the estate of a deceased person. This tax is applicable only to estates that exceed a certain value threshold, which varies by jurisdiction. It’s important to distinguish estate tax from inheritance tax, which targets the distribution of the deceased’s assets to their heirs.

Florida’s Stance on Inheritance and Gift Taxes

Florida does not levy an inheritance tax, although it’s worth noting that inheritance taxes from other states might affect you under certain conditions. For example, if you inherit from someone who resided in a state with an inheritance tax, like Pennsylvania, you may be liable for that tax regardless of your own residence. Furthermore, Florida does not have a gift tax, aligning with the federal exemption limits for gift taxes, which are $16,000 for 2022 and $17,000 for 2023. Gifts exceeding these amounts per annum per recipient count towards a lifetime exemption limit.

Federal Estate Tax Implications for Florida Residents

Despite the absence of a state-level estate tax in Florida, the federal estate tax may still be a consideration for estates valued over $12.06 million in 2022 and $12.92 million in 2023. Estates below these thresholds are not subject to federal estate taxes. However, estates exceeding these values are taxed on the amount above the threshold.

Example of Federal Estate Tax Calculation

Consider an estate valued at $21.22 million with a single owner. After applying the 2023 exemption of $12.92 million, the taxable portion of the estate amounts to $8.3 million. This portion would be subject to the highest tax bracket, with a base tax payment and additional taxes calculated on the remainder above the initial million taxed, leading to a significant tax liability.

Florida’s Overall Tax Landscape

Florida is known for its favorable tax environment, notably lacking a state income tax. This policy extends to income, Social Security benefits, retirement accounts, and pension plans, making Florida particularly attractive to retirees. With a state sales tax of 6% and an average combined rate of 7.01% once local taxes are included, along with moderate property tax rates, Florida maintains its reputation as a tax-friendly state.

The absence of an estate tax in Florida since 2004 simplifies estate planning within the state, but it remains important to consider potential federal estate tax liabilities. Proper estate planning is crucial to ensure the smooth transfer of assets to heirs without undue tax burdens. Consulting with a financial advisor or a  Florida Probate Lawyer can provide valuable guidance tailored to individual needs and circumstances, ensuring comprehensive planning and peace of mind.