Should You Worry about the Estate Tax?

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The estate tax currently affects only a tiny fraction of people in Florida. But even if you’re in its bullseye, there are ways to limit its effect

People who hate it call it the death tax. People who want to see it increase label it the Paris Hilton tax. But despite the intense passions, the estate tax actually plays a role in only a very tiny sliver of Florida probates.

Also called an inheritance tax, the estate tax is a levy on the transfer of a taxable estate from a deceased person to their heirs. It was created by federal law.

Some states have their own inheritance tax, but Florida is not one of them, so no state taxes need to be paid during any Florida-based probate. However, if you are an heir living in the state of Florida, but the deceased person leaving you his/her assets lived in a state with an estate tax (including New Jersey, Pennsylvania, and Maryland), your inheritance may be subject to that state’s levy.

You Need Multi-Millions to Qualify for the Estate Tax

The federal estate tax was always intended to affect only people with a lot of assets. The exact threshold that triggers the tax changes whenever Congress amends the law. In 2016 and 2017, individuals needed to have more than $5.45 million in taxable assets before the tax came into effect, while couples required double that.

For the 2018 tax year, that number skyrocketed to $11.18 million for individuals and more than $22 million for a couple.

The tax generally does not apply if one spouse (including a same-sex spouse) passes away and leaves their estate to the living spouse or to a federally recognized charity.

For these reasons, it is estimated that fewer than 0.1 percent of estates will need to pay this tax.

Most People Don’t Need Trusts or Other Tax Strategies

Because nearly all Americans, even wealthy ones, are not subject to the estate tax, it isn’t necessary for most people to partake in the myriad tax avoidance strategies many attorneys and financial planners advertise.

You may need to create a trust or other structure if you have heirs with special needs or other unique situations. However, they are not needed as an estate-tax avoidance plan unless your estate reaches the tax threshold.

Taxable Estate Differs From Gross Estate

Calculating the value of your taxable estate does not mean simply adding up all your assets. Those assets form your “gross estate.” Certain deductions are then allowed to be subtracted from the gross estate to reach the taxable estate figure. Some of these deductions include claims against the estate, administrative expenses, funeral expenses, gifts to certain charities, and more.

How to Keep From Falling Prey to the Tax

If you are extremely wealthy and are concerned that your estate may go over the estate tax exemption limit, especially since the amount of the exemptions changes regularly, there are ways you can reduce the value of your estate during your lifetime.

These include:

  • Giving gifts. You can gradually pass your wealth to your family or friends over the years through gift-giving. The law currently allows you to gift upwards of $5 million during your lifetime before any gift tax comes into play. For the tax year of 2018, anyone person could receive up to $15,000 in a gift from you without paying taxes.
  • Donating to charity. Charitable lead trusts and charitable remainder trusts are two ways you can transfer some of your assets to your favorite charity tax-free. Donating to charity via one of these vehicles allows you to have access to your money during your lifetime and then benefit from a charity after you pass away.
  • Restructuring your business. If you have a family-owned business or real estate properties, you can pass them on to your children by creating a family limited partnership. Your heirs become limited partners who step into your place after you are gone.
  • Creating certain trusts. If despite all this your estate will be over the estate-tax threshold, you should contact qualified wills and trusts attorneys to help you create certain trusts. This can include matters like a qualified personal residence trust to put your home and/or vacation homes in so their full value will not be counted in your taxable estate.

Probate Attorney Coral Springs

Have the Law Office of Gary M. Landau by your side. The Law Office of Gary Landau is located in Coral Springs, Florida, and is rated 10 out of 10 by the legal website AVVO. For more information or free phone consultation, call 954-979-6566 or email us. Attorney Gary Landau personally returns all calls to him.

Law Office of Gary M. Landau P.A.
7401 Wiles Road, Suite 204
Coral Springs, FL 33067

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