Fortunately, Florida is one of the thirty-eight states that does not have an estate tax, though a person may still be subject to the federal estate tax, which is often referred to as the “federal death tax.” Beginning January 1, 2019, the estate and gift tax exemption is $11,400,000 per individual and $22,800,000 per married couple. Meaning, an individual’s or couple’s estate will have to exceed these figures in order for the federal death tax to come into effect. For people with less than this threshold amount, you will not have to pay this tax.
While only approximately 2,000 estates per year are affected by the current figures, these figures are subject to what is called “political risk” and are subject to change. President Trump passed the Tax Cuts and Jobs Act in December 2017, but that Act is scheduled to expire after 2025, after which time the federal estate tax could be either increased, decreased, or remain the same depending on political factors at that time.
Annual Federal Gift Tax Exclusion
Each individual can make an annual $15,000.00 exclusion gift, or up to $30,000.00 as a married couple, to any individual tax free and covers an unlimited number of persons. The gift may be made directly to the individual, or in the case of minors such as children or grandchildren, to a specially designated annual exclusion trust. The exclusion does not only cover money, but anything with a market value of $15,000.00 or less, such as securities or personal property.
Lifetime Gift Tax Exclusion
The lifetime gift tax exclusion is the maximum number of gifts a person can give during their lifetime tax free. Beginning in 2019, the lifetime gift tax exclusion is $11,400,000.00.
Other Federal Estate Tax Exclusions: Payment of Medical Expenses or to Educational Institutions
- Educational Exclusion – payments made directly to an educational institution for the benefit of an individual qualify under the educational exclusion. There are a few requirements: (i) payment must be made to the institution itself and not the person receiving the education, (ii) payment must be for tuition expenses only and does not cover expenses such as books, school supplies, and room and board, and (iii) the school must offer a regular curriculum and faculty and have a regular body of students.
- Medical Exclusion – payments made directly to a medical institution or care provider also qualify as an exclusion. The medical expenses that qualify are the same as those that are deductible for income tax purposes. Similarly, the payments must be made directly to the medical provider. Unlike the education exclusion however, there is a cap of $15,000.00 that can be paid out directly to the medical provider before it is considered a taxable gift.
A 529 Plan is a tax-advantaged college savings account. Income in the 529 Plan and distributions from the 529 Plan college expenses such as tuition, books, and room and board are received free of income taxes. Florida’s 529 Plan is commonly referred to as “Florida Prepaid.” Further information about Florida Prepaid can be obtained here.
Generation-Skipping Transfer (GST) Tax Exemption
The GST Tax Exemption is the amount that can be directly given to grandchildren by their grandparents without incurring a federal generation-skipping transfer tax. Prior to the GST Tax, grandparents would transfer money to their grandchildren (hence the generation skipping) in order to prevent their children from being subject to the federal estate tax. The IRS imposed the GST tax at the top estate tax rate, currently 40%, in order to prevent this behavior. However, there is a GST tax exemption of $11,400,000.00 that can be directly transferred to grandchildren or into a GST Tax Exemption Trust without incurring the GST tax.
More Resource For Federal Estate Taxes
The IRS has provided a great resource for frequently asked questions on estate taxes. The US estate tax return form that is filled out when one leaves assets upon their death is IRS form 706. This form must be filed within nine months after the date of death (a six month extension may be be requested).
Note to readers:
We are not certified public accountants and any information regarding taxes in this article should be run by a licensed and professional accountant. If you are looking for specific florida estate tax information please check out our resource page here.