By: Barry E. Haimo, Esq.
May 19, 2015
Is an Estate Tax Imposed by Both the Federal and State Governments?
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In some states, you will pass away and be subject to both federal and state estate tax. However, in Florida, you will only be subject to federal estate tax.
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What Is Estate Tax?
Estate Tax is a tax levied on assets owned by a person upon death. The tax is based on your gross estate, which consists of aggregating the following::
- Bank accounts
- Brokerage accounts
- Real property
- Artwork
- Businesses interests
- Intellectual property
- Any else that has value
If your gross assets and taxable gifts are less than $5.45 million (as of 2016), you will not have to file an estate tax return with the federal government. If you are married, the threshold to be subject to estate tax is even higher. These numbers continue to rise year by year due to continued inflation. It is estimated that only 2 out of every 1,000 estates are subject to the federal estate tax. In a recent post, we examined the estate of the Artist formally known as “Prince” because his failure to plan will cost his estate 40% in estate taxes.
Recently, there have been efforts made by Congress to remove the federal estate tax. The House of Representative voted in favor of repealing the tax last April.
Those who support a repeal argue that small business owners would benefit from the removal of the tax. Supporters of the tax argue that it is an important source of revenue and is crucial for dividing wealth.
Unfortunately, there is no possibility that the federal estate tax will be abolished until 2017 at the earliest, because President Obama has promised to veto any estate tax repeals. However, the coming change in executive leadership could mean the federal estate tax could be repealed in the near future. Whether the tax is higher lower or nonexistent is a political issue and, therefore, very uncertain. Proper planning is necessary as a result.
State Estate Tax
In addition to estate taxes, the following states (and the District of Columbia), are also subject to state estate tax: Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Tennessee, Vermont, and Washington.
As mentioned above, Florida does not collect a state tax. That means that if a loved one dies as a Florida resident and you inherit from his or her estate, you don’t have to worry about paying any state taxes on the amount; just potentially federal estate taxes. However, if you inherit property from a loved one that is a resident of any state that does impose one of these taxes, the estate or you (depending on other factors) may be taxed for that property.
Does this mean that there’s no need to worry about estate planning in Florida? Not at all.
Why Floridians Need Estate Planning
People in Florida may not need to worry about paying state estate taxes. And the federal minimum is so high that most people won’t owe federal estate taxes either. But that doesn’t mean your assets are completely protected and that your loved ones will automatically get everything you intend to leave them.
Even if your estate is smaller than the federal minimum, it is still vulnerable to all kinds of creditors. Their claims can take huge chunks out of what you want your loved ones to inherit. You also want to avoid probate and guardianship, appoint the right fiduciaries in the right positions, and in general ensure that your wishes are carried out.
Luckily, there are a number of estate planning tools you can use to protect your assets and ensure they reach the people you want them to reach. But these tools don’t automatically go into effect. You need to specifically set them up during your lifetime.
And because they can be complicated and confusing, and small mistakes can allow creditors and other estate predators to pounce, you need to work with a knowledgeable Florida estate planning attorney. Your loved ones will thank you for it.
Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose
Email: barry@haimolaw.com
LinkedIn: http://www.linkedin.com/in/bhaimo
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