Does Florida Have an Estate Tax?
Last Updated: June 15, 2022 • 9 min read
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There is no estate tax in Florida. However, you may still be required to pay federal estate tax.
If you feel ready for estate planning, and even if you don’t feel ready you should look into getting professional help from a financial advisor. Estate planning can be a lot to take on, and this is something relying on a professional can really make a difference in how much you can pass on to your heirs from your estate.
Make sure to be looking at hiring a fee-only advisor instead of a financial advisor that makes money by selling you certain products like term life insurance.
Florida Estate Tax History
There is no estate tax in Florida. In the year 2004, the sunshine state abolished its estate tax. Before the change to Florida’s tax law, the federal tax law had a credit for death taxes at the state level but it was included on your federal tax return.
The credit was changed by the federal government to instead be a deduction that could be used when filing your state taxes. At the time, Florida’s estate tax was only based on the federal tax credit. This meant that Florida had no need for the estate tax any longer. Anyone that passed on from this life in 2005 or later and was a Florida resident no longer had a state estate tax.
What is Estate Tax?
An estate tax is a tax that is levied on the estate of the recently deceased. In layman's terms, it is a tax on the money you have left over after you die. Luckily, it only applies to estates of a certain size, and the amount varies depending on if the tax is coming from the federal government or from your state government.
You’ve probably heard of the “death tax”, the legal term for death tax is actually estate tax. This isn’t to be confused with the quote from Benjamin Franklin, “The Only Two Certainties In Life Are Death And Taxes.”
Federal Estate Tax
The state of Florida doesn’t have an estate tax, but that doesn’t make you exempt from the Internal Revenue Service's federal estate tax. The federal estate tax for the 2023 tax year starts at $12.92 million. That means that an estate that has a total value of under $12.92 million will not pay need to pay federal estate taxes. On the other hand, that means that any money in your estate over $12.92 million will be subject to being taxed.
This tax exemption for federal estate tax works as well for married couples. If a married couple has planned their estate correctly, they can have $25.84 million of the exemption between the two of them after the original spouse and the surviving spouse pass away. Once an estate has surpassed that value, the maximum taxable rate is 40%. Use this table to calculate the amount of tax your estate could be subject to.
| Tax Rate | Taxable Dollar Amount | Total Tax Owed |
|---|---|---|
| 18% | $0 - $10,000 | 18% of the taxable amount |
| 20% | $10,001 - $20,000 | $1,800 + 20% of anything over $10,000 |
| 22% | $20,001 - $40,000 | $3,800 + 22% of anything over $20,000 |
| 24% | $40,001 - $60,000 | $8,200 + 24% of anything over $40,000 |
| 26% | $60,001 - $80,000 | $13,000 + 26% of anything over $60,000 |
| 28% | $80,001 - $100,000 | $18,200 + 28% of anything over $80,000 |
| 30% | $100,001 - $150,000 | $23,800 + 30% of anything over $100,000 |
| 32% | $150,001 - $250,000 | $38,800 + 32% of anything over $150,000 |
| 34% | $250,001 - $500,000 | $70,800 + 34% of anything over $250,000 |
| 37% | $500,001 - $750,000 | $155,800 + 37% of anything over $500,000 |
| 39% | $750,001 - $1,000,000 | $248,300 + 39% of anything over $750,000 |
| 40% | $1,000,001+ | $345,800 + 40% of anything over $1,000,000 |
Federal Estate Tax Example
As a married couple, let’s say that you have an estate worth a whopping $30 million! This is made up of real property, mutual funds, your massive primary residence, life insurance policy, and retirement accounts. We’ll subtract the federal estate tax exemption of $24.12 million and we’ll be left over with a taxable estate of $5.88 million. That qualifies your joint estate for the highest estate tax bracket, which means that the base payment you’ll have is $345,800. Because $1 million has already been taxed, we’ll only need to apply the 40% tax rate to the remaining $4.88 million. 40% of $4.88 million is $1.952 million, and then we add that to the beginning $345,800. That leaves you and your estate a tax bill of $2,297,800.
Probate is not part of the Estate Tax
Many Americans confuse probate with the federal estate tax. If someone dies and they have tangible personal property in their own name, the probate process begins. It is then used to determine the decedent’s estate or estates of decedents and pays any remaining bills. This could be things like state death taxes (state estate taxes), property taxes, income taxes, etc. Finally, after all of that takes place they distribute any remaining assets to the named beneficiaries. These assets could be anything from family heirlooms, rare baseball cards, real estate, retirement accounts, etc.
Tips for Estate Planning
Estate planning is critical, but can also be fairly complicated. Here are a few tips to make things easier on you.
- Consider speaking with a financial advisor. Make sure to select a fee-based financial advisor to avoid conflict of interest. A lot of employers have free consultations with financial advisors as part of their benefits package so this could be an easy way to start.
- Follow legal guidelines for your will. A lawyer can be invaluable in this process. Make sure they explain all the rules around how your will can actually operate.
- Tell loved ones where your documents are. Make sure they can also access them after you are gone. This also includes if your documents are stored digitally, providing means for access in the future.
- Review your documents. Things change so it is a good practice to review your estate plan every two to three years. If there is a drastic change in your family or tax law that is also an event that would signify a good time to review your estate plan.
- Shield your assets in a trust. Using a correctly formed irrevocable trust can usually legally shelter a fair amount of your assets from federal estate tax. How do you think generational wealth stays in the family?
Florida Gift Tax and Inheritance Tax
In the sunshine state, there is no inheritance tax. That doesn’t mean that other states’ inheritance taxes won’t have an effect on you. There are some states where if the deceased lived there (Pennsylvania for example), you could still be on the hook for inheritance tax. When you are receiving an inheritance it is important to check the laws for that state, or else you may be surprised when tax time rolls around.
In Florida, there is no gift tax. This means that if you stay under $15k for your gifts per individual every year, you will also not be taxed on the federal level for gifts. This is also another reason to start estate planning early. You can start with gifts of under $15k each year that does not qualify as taxable gifts to your heirs long before you pass away. That could help ease the tax burden on your estate once that day comes.
What Taxes Do You Pay in Florida?
You’ve probably seen the flocks of people that have been moving to Florida during the great resignation and buying real estate there. Florida has a well-known reputation for being a low-tax state. In Florida, there is no state income tax. This is beneficial for those that are actively working as well as those that are retired. That also means that pension plans, Social Security, and retirement account withdrawals are all free from state income tax.
Florida has a state sales tax of 6%. In most locales, there is an additional sales tax that can increase the rate all the way up to 8.5%. The average property tax in Florida is 0.89%. In a recent study, this is ranked at spot number 24 of the rankings for the 50 states and the District of Columbia. Similar states are Kentucky and Florida. New Jersey topped the list at 2.49%, and New York wasn't quite as bad at 1.72%.
Final Thoughts
There is no estate tax in Florida. Florida is one of 38 states in the United States that do not have an additional estate tax for a resident decedent. That doesn’t shield your estate from the federal estate tax, but the good news is there are legal tax shelters in place if you properly plan your estate.
Make sure to be in the know, and stay up to date with estate tax laws. Using a free consultation to find a fee-based financial advisor and a lawyer will help you with this goal. This will save your heirs from a hefty tax bill, and be able to enjoy the fruits of your labor even longer.