Florida has no estate tax and the federal one starts at $15,000,000, so for most Florida families the real question is capital gains, retirement accounts, and the drafting that second marriages require.
Key Takeaways
- Florida imposes no estate, inheritance, or gift tax, and the federal estate tax reaches only estates above $15,000,000 per person in 2026, or twice that for a married couple whose survivor files the portability return.
- Below the exclusion, giving appreciated property away to “avoid estate tax” usually trades a tax of zero for a real capital gains tax, because inherited property takes a stepped-up basis and gifted property does not.
- Retirement accounts, out-of-state real property, and second marriages are where a Florida estate plan still has tax work to do, and the advanced techniques belong only to estates above the exclusion.
Every few weeks someone tells me they want to avoid estate tax. It is a reasonable thing to want. It is also, for most Florida families, a problem they do not have, and the steps people take to solve it can create a tax they would otherwise never have paid. This article is about telling the two situations apart.
Florida does not tax estates, inheritances, or gifts
Florida has no estate tax, no inheritance tax, and no gift tax. Its old estate tax was a “pick-up” tax measured by a federal credit for state death taxes; Congress phased that credit out, and for deaths after 2004 the Florida tax collects nothing. Fla. Stat. § 198.02 still describes it, and the Florida Constitution forbids the Legislature from imposing a death tax beyond what the federal government allows as a credit. If you die a Florida resident, the State of Florida sends no bill. Whether the federal government does depends on how much you own.
The federal estate tax starts at $15,000,000 per person
The federal estate tax applies to everything you own at death, including retirement accounts and life insurance you control, less debts, expenses, and whatever passes to a spouse or to charity. Above the basic exclusion amount, the rate is 40 percent. For 2026 the exclusion is $15,000,000 per person, set by the federal legislation enacted in 2025 and indexed for inflation after that. A married couple can shelter twice that amount, but only if the surviving spouse takes a step that is easy to overlook.
The unused exclusion of the first spouse to die does not pass to the survivor automatically. It passes by an election on a federal estate tax return, Form 706, filed within nine months of death, or fifteen months with the extension. If no return was otherwise required, the IRS allows a late election for portability alone within five years of death under Rev. Proc. 2022-32. I raise this with every widow and widower I see, because the return is often skipped when the first estate was well under the threshold, and the survivor’s estate may not stay there. Preparing the return is the CPA’s work. Knowing it needs to be filed is mine.
Gifts reduce the taxable estate, within limits
You may give $19,000 per recipient in 2026 without reporting the gift or using any of your exclusion, and a married couple can give twice that to each recipient by electing on a gift tax return to split their gifts. Tuition paid directly to the school and medical expenses paid directly to the provider are excluded without limit under IRC 2503(e). Gifts and bequests to a spouse who is a United States citizen are unlimited; a bequest to a spouse who is not a citizen qualifies only if it passes through a qualified domestic trust. Gifts to charity are deductible without limit. Larger gifts are not taxed when made; they are reported and reduce the exclusion available at death.
For most Florida families, the capital gains tax matters more than the estate tax
Property you own at death takes a new income tax basis equal to its value under IRC 1014. Property you give away during life keeps your basis under IRC 1015. Suppose a widow in Dunedin bought a rental duplex in 1988 for $120,000, and it is worth $900,000 today. If she leaves it to her daughter at death, the daughter’s basis is $900,000, and a sale the following year produces little or no taxable gain. If instead the widow deeds it to her daughter now, to “get it out of the estate,” the daughter takes the $120,000 basis and, on the same sale, a gain of $780,000. The estate tax this transfer avoided was zero, because the widow’s estate was never going to approach $15,000,000. The capital gains tax it created is real.
Below the exclusion, the instinct to give appreciated property away is usually backward: Hold it, let it take the step-up, and if you want to give during life, give cash or property with a high basis. Above the exclusion the arithmetic changes, because a 40 percent estate tax can exceed the capital gains tax a carryover basis would cost, and that is where the techniques discussed below earn their keep.
Retirement accounts are an income tax problem, not an estate tax problem
A traditional IRA or 401(k) gets no step-up. It is income in respect of a decedent, and whoever inherits it pays income tax on the withdrawals. Since the SECURE Act, most beneficiaries other than a spouse must empty an inherited account within ten years of the owner’s death, with longer periods for a surviving spouse, a minor child of the owner, and a few others. Ten years of withdrawals during a child’s peak earning years can push a large account into high brackets. Whether to convert part of a traditional account to a Roth during life, paying the tax now at your rates rather than later at theirs, is an income tax question, and I send it to the client’s CPA. What I draft is the beneficiary designation and, where a trust should receive the account, the trust provisions that preserve the ten-year rule rather than something worse.
Another state can tax the property you kept there
About a dozen states and the District of Columbia tax estates or inheritances, and several reach real property a Florida resident owns there. Oregon taxes estates above roughly $1,000,000 and Massachusetts above $2,000,000. New York’s exemption is higher but has a cliff: An estate a little over the line loses the exemption entirely. Pennsylvania’s inheritance tax reaches a nonresident’s Pennsylvania real property. If you kept a house in one of those states when you moved here, that state may tax it when you die, and a Florida revocable trust does not change that result, though an entity sometimes does. Whether to keep the property, and in what form, is a question I take up with every client who has it.
Second marriages are where the drafting matters
Portability lets a surviving spouse use the deceased spouse’s exclusion. It does not control where the property goes. Suppose a man in Palm Harbor with children from a first marriage leaves everything to his second wife. No tax is due at his death. At her death, whatever remains passes under her documents to whomever she chooses, and his children have no claim. A credit shelter trust, sometimes called a bypass trust, addresses this: An amount up to the first spouse’s exclusion goes into a trust that supports the survivor for life and then passes to the children named in the document, and its growth stays outside the survivor’s taxable estate. The cost is a separate taxpayer with its own return, and no second basis step-up at the survivor’s death on what the trust holds. A QTIP trust does similar work for the marital share while keeping the eventual beneficiaries fixed. Portability has a quirk of its own: The survivor keeps only the unused exclusion of the last spouse to die, so a survivor who remarries and is widowed again can lose it.
The advanced techniques are for estates above the exclusion
Irrevocable life insurance trusts, spousal lifetime access trusts, grantor retained annuity trusts, and the rest of the toolkit all do one thing: They move value, and its future growth, out of the taxable estate at a cost in control, complexity, and ongoing attention. Below the exclusion they move value out of an estate that owed nothing. Above it, or above twice it for a couple, they are worth the trouble, and I describe them on the pages for advanced estate planning techniques and irrevocable life insurance trusts. If you are not there yet, I will say so.
I do not give tax advice; I draft the documents that carry the plan out
A tax plan is a projection of values, of rates, and of what Congress does next. The CPA or tax attorney prepares the returns and runs the projections. I design the estate plan so that it carries the tax plan out: the credit shelter and marital trusts, the beneficiary designations, the deed that leaves appreciated property in your name until death, the life insurance trust that owns the policy from the day it is issued. The two professionals need to talk to each other, and in my practice they do.
If you would like to know whether any of this applies to you, the first step is the questionnaire, followed by an hour with me in Palm Harbor, or by appointment in Tampa or St. Petersburg.