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Federal estate tax can hit unwary wealthy Floridians

On Behalf of | Jan 27, 2023 | Estate Planning |

Wealthy Floridians will want to pay attention to an important component of estate planning: the estate tax.

While the estate tax does not affect everyone, those of greater wealth could find the value of their estate is lowered due to the estate tax if they do not account for this possibility in their estate plan.

What is the estate tax?

The estate tax is a federal tax taken off the value of your estate upon your death. The value of your estate is calculated using the fair market value of your assets.

Not all estates are subject to the federal estate tax. In 2023, only estates worth $12.92 million or more for single individuals are subject to the estate tax. All other estates are excluded from the federal estate tax. Florida does not have an estate tax at the state level.

Following the enactment of the Tax Cuts and Jobs Act, in 2018 the estate tax exemption was doubled and rose every year as adjusted for inflation.

However, this will not last forever. Unless Congress acts to change current laws, in 2026 the estate tax will fall back to $5 million, as it was prior to 2018.

Reducing the size of your estate

Wealthy Floridians have options for reducing the size of their estate in light of the upcoming sunset of the current estate tax exemption.

One way Floridians can reduce the size of their estate is through gifting to loved ones. In 2023, you can gift up to $17,000 to as many individuals as you wish every year without being taxed on the gift. This will reduce the size of your estate as long as you do not exceed the estate tax exclusion limit of $12.92 million for single individuals in 2023.

Another way Floridians can reduce the size of their estate is through charitable donations. Charitable donations are deducted from your estate.

In addition, Floridians can transfer as many assets as they wish to their spouse whenever they want, even in their will. Assets transferred to a surviving spouse are not subject to the estate tax. However, once the surviving spouse dies, these assets are included in the taxable estate.

The estate tax is not an issue for many. Wealthy Floridians, however, will want to take steps during their lifetime, and within the next few years, to undertake estate planning strategies that will help them avoid the estate tax.



Photo of Jennifer D. Sharpe