Avoiding or minimizing estate taxes is an important goal of estate planning. Even in states like Florida, where while there is no state estate or inheritance tax, residents are still subject to federal estate taxes. Fortunately, there are many strategies available to help reduce Federal estate taxes:
1. Use of Trusts
Utilizing trusts, such as revocable living trusts, irrevocable life insurance trusts, and charitable remainder trusts, can be a powerful way to shield your assets from excessive taxation.
- Revocable Living Trusts: These types of trusts allow you to maintain control over your assets during your lifetime and distribute them to your heirs tax-efficiently upon your death, bypassing probate.
- Irrevocable Life Insurance Trusts (ILITs): By placing your life insurance policy within an ILIT, the death benefits are not considered part of your estate and are, therefore, not subject to estate taxes.
- Charitable Remainder Trusts (CRTs): This allows you to receive income for life or a specified term of years, with the remainder going to a charity, which can reduce estate and capital gains taxes.
2. Annual Gift Tax Exclusion
If you decide to gift assets during your lifetime, up to the annual exclusion limit, you can reduce the size of your taxable estate size while benefiting your loved ones immediately. The IRS allows you to give away up to $18,000 in 2024 (it was $17,000 in 2023) in money or property to as many people as you like each year. If you are married, you and your spouse can each give $18,000 each, making the total gifts $36,000 to as many individuals as you like.
3. Lifetime Gift Tax Exemption and Estate Tax Exemption
In addition to the annual exclusion, there is a Federal lifetime exemption from estate and gift taxes. The current tax code provides for a historically high exemption of $13.61 million in 2024. Utilizing this exemption during your lifetime can transfer substantial wealth from your estate.
4. Family Limited Partnerships (FLPs)
FLPs allow you to transfer assets like family businesses or real estate to your heirs while retaining control over the decisions regarding these assets. This can also provide valuation discounts for gift tax purposes when you transfer partial interests in these closely held businesses or real estate due to the limited marketability and control of the partnership interests transferred to heirs.
5. Qualified Personal Residence Trusts (QPRTs)
The qualified personal residence trust is an irrevocable trust funded by transferring the personal residence into the trust. The settlor of the trust, the person transferring ownership of the house, retains a right to live in the house for a term of years or a specified amount of time (until the settlor dies). The value of the gift is reduced by your retained interest, thus reducing the estate tax impact.
6. Spousal Lifetime Access Trusts (SLATs)
A SLAT allows one spouse to make a gift into a trust for the benefit of the other spouse, potentially utilizing the gift tax exemption while still providing for the beneficiary spouse’s needs.
7. Charitable Giving
Donations to charity are exempt from gift tax and can reduce your taxable estate. Strategies include outright gifts, donor-advised funds, or establishing a private foundation.
8. Portability Election
This election allows the surviving spouse to use any unused federal estate and gift tax exemption of the deceased spouse, effectively doubling the amount the couple can pass tax-free.
Contact Our Tampa Area Estate Planning Attorneys
Estate planning is a proactive process that requires careful consideration of various strategies to minimize taxes while ensuring your assets are distributed according to your wishes. Each strategy might have tax implications, making personalized advice invaluable. While these strategies can offer significant tax advantages, consulting with estate planning attorneys to tailor these approaches to your specific situation is crucial. Laws and tax regulations can change frequently.
Verras Law has experienced estate planning attorneys in Florida who will ensure compliance with all legal requirements as we help you navigate your individual circumstances and what is best for your particular estate plan. Contact one of our offices today.