Laws surrounding estate and gift tax rates change annually. For 2024, estate tax exemptions are higher. When an exemption is higher, more estates are exempt from federal taxes. That also translates to lower tax bills for heirs. The IRS reviews these rates annually and adjusts for inflation. For people who pass away in 2024, the exemption amount will be $13.61 million, which is good news for those with substantial estates. For married couples, these exemptions apply per individual, meaning they can benefit from a $27.22 million exemption amount. Review your Estate Plan with our South Florida Estate Planning Attorneys.
Which Estates Are Subject to the Exemption Rate?
When you see the estate exemption amount, you might wonder how many estates it applies to. A small percentage of estates will qualify for this exemption, and any estates over this amount will be subject to federal estate taxes. You could face hefty tax rates if your estate is higher than the exemption amount. Unfortunately, heirs are responsible for paying taxes relevant to the estate value.
Lifetime Gift and Estate Tax Exemption
In 2018, we saw the most significant increase in estate tax exemptions, which is set to end in 2026. This is cause for concern for wealthy estate heirs. In 2026, the estate exemption amount will drop from over $13 million to $5.49 million. There is one caveat that can help wealthy heirs. In certain situations, if tax-free gifts were made before the lifetime gift, the exemption would not be subject to the higher tax rate in 2026. This may apply to anyone who has made gifts from 2018 to 2025. However, some gifts will not be exempt, including:
- Gifts involving promissory notes
- Grantor-retained income trusts
- Completed gifts that are later included in the estate
Meet with your Estate Planning Attorneys in South Florida to assess how your tax rates will change in 2026.
Watch for State Estate Taxes
The federal estate exemptions are one element to consider as an heir. Another is state estate taxes. Independent states can have additional tax exemption rules they can impose. So, even if you meet the federal exemption, you could still be responsible for state tax bills. Heirs may also have to consider an inheritance tax. The states that impose estate taxes include:
- District of Columbia
- New York
- Rhode Island
Amounts will vary by state or territory. Connecticut exemption amounts are the closest to the federal one. Currently, Florida is not on the list for 2024. However, things change annually. There are some states that have an inheritance tax, including:
- New Jersey
While Iowa is on the list, they are working to phase out the inheritance tax by the end of 2024.
What Does a Gift Tax Cover?
There are some situations where you may have to pay a gift tax. Typically, this involves a person giving money or property to someone, not their spouse or dependents. Federal excise ranges from 18% to 40%, depending on the gift amount. The person who receives the gift is not responsible for paying the tax. The person who gives the gift can be subject to gift tax. Tax-free gifts include:
- Medical expenses
- School tuition
- Education payments
- Gifts to spouses and dependents
- Charitable donations
- Political contributions
Additionally, you can give away up to a certain amount in assets or property without paying any taxes. That amount is set at $18,000 for 2024. Married couples can each give away $18,000, totaling $36,000 per donee per year. You must also consider the lifetime exemption limit, which has additional implications that can help avoid paying taxes on gifts. Our South Florida Estate Planning Attorneys can help determine your tax implications regarding gifts and inheritance.
Florida Estate Taxes
Florida does not have an estate or inheritance tax. However, we do have a pickup tax. Under these taxes, Florida will pick up a portion of state death taxes on IRS Form 706 or 706 NA. Florida’s lack of estate taxes appeals to wealthy individuals trying to avoid excessive taxes. Additionally, for estate tax laws to change, 60% of voters in the state would have to vote for a constitutional change.
Additional Consideration for Florida Estate Planning Taxes
While you may think only millionaires should stay abreast of the tax implications, your circumstances may fall into estate tax payments. This is why speaking to our Estate Planning Attorneys in South Florida is vital. Some circumstances that can lead to tax implications include:
- Assets sold:
If an heir or beneficiary sells property or assets they receive from the estate, it can be subject to federal income taxes. Typically, this applies if the asset appreciates.
- Retirement accounts:
If funds are levied from retirement accounts like 401ks, annuities, or IRAs after their passing. Generally, taxes would not apply unless these specific situations are involved. Funds received from retirement plans and investment accounts can be taxable.
- Income generation:
If funds are generated from assets or property, they may be taxable before the heir or beneficiary controls them. This may include rental properties and other assets.
- Inheritance from Non-U.S. Citizens:
If the deceased was nonpermanent and owned Florida property, the beneficiary experienced tax consequences.
If any of these situations apply to you, then discussing your options with our South Florida Estate Planning Attorneys is best. We can guide you on taking over the estate and the potential tax consequences.
Call THE South Florida Estate Planning Attorneys – The Siegel Law Group
The Siegel Law Group has served clients in South Florida with estate planning for over 25 years. Our South Florida Estate Planning Attorneys will craft personalized solutions for your needs. You might not want to think about what happens when someone dies, but the government is and they will apply relevant tax consequences to your situation.
Call our office at (561) 576-6206 to schedule a complimentary consultation, or submit our online contact form to schedule a consultation today. If you have any questions, do not hesitate to contact us.