When someone dies, whatever property they solely own becomes their estate. Their vehicle, their house, their furniture and their other assets may all contribute to the total value of their estate. Those assets will generally need to pass through probate court before they become the property of someone’s chosen beneficiaries unless certain proactive measures have been taken to keep specific assets out of probate.
There are also certain personal responsibilities that transfer to an individual’s estate when they die, including their debts and certain tax obligations. Certain tax responsibilities, like estate taxes, can drastically alter the total value of the legacy someone leaves when they die. Careful estate planning is valuable for any adult who has dependent family members, sizable resources or personal medical challenges, partially for these reasons.
Federal estate taxes may apply
Florida does not impose an estate tax. Those who die while living is residents of Florida will not need to share a portion of their estate’s value with the state government. However, there could be federal estate taxes that apply. An estate will need to be worth millions of dollars for it to be eligible for estate taxes. As of 2023, the exemption threshold for estate taxes at the federal level is $12,920,000. The federal tax is progressive, which means that the overall tax rate will increase based on how much the estate exceeds the threshold. In the most extreme cases, federal estate taxes can lead to a 40% tax, meaning that two-fifths of the estate’s value will go directly to the federal government rather than to someone’s intended beneficiaries.
How do people avoid estate taxes?
Limiting the assets that someone holds in their own name is the simplest and most common strategy for reducing estate tax obligations. Some adults will make gifts to their loved ones each year that they carefully plan to avoid gift taxes. Others might move their most valuable personal resources into a trust so that their real property, financial accounts or business holdings won’t pass through probate court.
Thoroughly reviewing one’s assets and thinking about a future legacy are important steps for those who believe that estate taxes could diminish what they leave for those they love when they die.