Why Estate Tax Planning in Florida is Important

Many people retire to Florida because of its weather and lack of state income tax. However, the federal government seeks its share after you pass. An estate planning attorney can help you set up a trust to minimize that tax burden.

Another very important reason for using an estate lawyer to help you set up a plan is that anything can happen at any time. A trust can help with asset protection should you become incapacitated. It can also allow a loved one to handle your affairs until you are well enough to do it yourself.

You do not have to be a certain age to create an estate plan. In fact, if you are over 18 and own assets, regardless of the value, you should create an estate plan.

Types of Trusts for Minimizing the Estate Tax Burden

Florida has several types of trusts that can help minimize your tax burden, including:

Revocable Living Trust

One of the most common trusts in Florida is a revocable living trust. This flexible estate planning tool allows you to keep control over your assets during your lifetime and specifies how your assets should be distributed upon your death. A revocable living trust can help avoid probate and minimize estate taxes.

Irrevocable Life Insurance Trust

When you need a trust to hold life insurance policies, you can use an irrevocable life insurance trust. When you place your life insurance policies in this trust, the proceeds from the policy can be excluded from the taxable estate. This trust is needed (but not required) if your estate is valued at over $12.92 million.

Qualified Personal Residence Trust

You can transfer your primary residence to a qualified personal residence trust and still keep your right to live in it for a certain number of years as dictated by the trust. In the trust, list the number of years you expect to live – you have a right to stay in the house until then. This is one of the ways you can minimize your tax burden. If you are still alive when the time ends, you can pay rent to the estate, which further reduces your estate tax burden.

Charitable Remainder Trust

When you wish to give to a charitable organization, you can choose a charitable remainder trust. Any assets placed in this trust provide income to beneficiaries for a set time. If there is anything left in the trust, the remaining assets go to the charity you choose.

Dynasty Trust

Use a dynasty trust to provide for multiple generations. You can preserve wealth for the long term, plus reduce estate taxes for each generation so that your grandchildren and great-grandchildren can enjoy your wealth. The asset protection attorneys at France Law Firm can help you set up a dynasty trust.

Contact France Law Firm

While Florida offers many benefits because of its tax laws, the federal government is still going to use the long arm of the Internal Revenue Service to collect what it can get. You can use one or more trusts to minimize the tax burden for your heirs. Contact the probate attorneys at France Law Firm for a consultation to discuss a new estate plan or to update a current estate plan.

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The estate tax, commonly referred to as the death tax, was made permanent in the Internal Revenue Code as part of the American Taxpayer Relief Act of 2012. The tax passed on Jan. 1, 2013. The tax exemption amount changes every year and the change is based on inflation. When it was first made into law, the exemption amount was $5 million. For 2017, the exemption amount is $5.49 million. The estate tax is combined with gift taxation policies and was put in place to keep wealthy people from giving away their estates during their lifetimes in order to avoid the 40 percent federal estate tax.

The Annual Gift Tax Exclusion

The annual gift tax exclusion also changes every year, though it has been stuck at $14,000 since 2013, and is $14,000 for 2017. Taxes are paid on gifts by the gift giver (the donor). Each donor may give $14,000 to any number of individuals each year. However, if you give your child – yes, family members count – $16,000, you would have to pay tax on the $2,000 overage. If you have three children and any number of friends you want to give gifts to, each may get $14,000 per year without the donor being subject to tax on that money.

Exceptions to the Rule

Some places are exempt from the rule. This means that if you give over $14,000, you are not taxed.

Educational and Medical Facilities

Educational and medical gifts, regardless of size, are not taxed. However, you must donate directly to the institution. And, with educational gifts, the gift must be used for tuition. If it is used for books, living expenses, lodging or anything else, it is taxable after the first $14,000.

Charities and Political Organizations

You may also give money or possessions to some charities without incurring the yearly gift tax, should you go over the exemption. The charities must meet standards set by the Internal Revenue Code. Additionally, gifts to political organizations are not taxed.

Your Spouse

Gifts to your spouse are not counted. You could give your spouse $10 million a year and it would not be taxed.

How Gift Taxation and the Estate Tax Works Together

You may have been wondering what the estate tax has to do with the gift tax. It provides a vehicle to get around paying yearly gift taxes if you give more than $14,000 to any one person during the year. If you decide to give your child $50,000 for a wedding gift, if you played by the rules, $36,000 of that would be taxable.

However, if you are married, you and your spouse may each give your child $14,000. To keep the record straight, it should be in two different checks – one from each of you for $14,000. That brings the total up to $28,000. At this point, $22,000 would be taxable. However, you may allocate that $22,000 toward the lifetime estate tax exemption. You would have $22,000 less to give at your death, but that is only a concern if your estate is worth more than the estate tax exemption for the year you die.

Definition of “Gift”

For tax purposes, a gift is any transfer of anything of value to another person wherein you do not receive full consideration. If you give someone $15,000 in exchange for services that the receiver would normally charge $15,000 for, that is not a gift since you received services worth that amount.

If you are giving a gift of physical items, such as real property or personal property, the value of the gift is fair market value. The fair market value is the reasonable price that you would ask for the item if you were selling it, and what the buyer would pay for that item.

Gift Documentation

You’ll need to complete Form 709 if you give a gift that is over the annual exemption amount. If the gift was anything other than cash, you should be prepared to submit copies of appraisals and other relevant documents that are related to the transfer.

Professional Representation

The gift tax and estate tax laws become quite complex in that there are other ways to gift to avoid taxes. You also have the option of setting up certain types of trusts to help avoid part of the estate tax. If you plan on gifting a significant amount or have children getting ready to enter college, contact France Law Firm to discuss the gift tax, estate tax and to create an estate plan that benefits you and your family.

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The Annual Exclusion Gift

Each year, the Internal Revenue Service (IRS) sets an amount at which any gifts will be excluded from paying any federal gift taxes. These amounts are typically published in early November of each year. Any gifts to a person that exceed that amount will be subject to federal gift taxes. Any gifts that are that amount or less will be excluded from such taxes. While the rule itself seems rather cut and dry, there are certain circumstances in which you may qualify for an exclusion of the federal taxes on gifts even if the gift exceeds the amount specified by the IRS. In 2012, the annual exclusion gift amount was $13,000. The following year, the amount was raised to $14,000, a number that has remained consistent since 2013.

How to Get an Annual Gift Exclusion

Each year, each person receives their own separate exclusion amount that they can provide in gifts. In this instance, a gift is considered anything given in which nothing is received in return. There is no limit on the number of people that can be gifted and come under the annual exclusion gift rules. If you are gifting with a spouse, the couple can combine their gift exclusion amounts to stay under the exclusion limit. However, any gifts that are split between a couple must be reported to the IRS by Form 709 of the United States Gift Tax Return.

If you are gifting to a spouse that is a United States citizen, that gift is automatically excluded from any federal gift taxes. But if you are gifting to a spouse who is not a United States citizen, there is a separate annual exception amount, an amount that has steadily grown over the past eight years. That amount was $134,000 in 2010, $136,000 in 2011, $139,000 in 2012, $143,000 in 2013, $145,000 in 2014, $147,000 in 2015, $148,000 in 2016, and is $149,000 in 2017.

If you are gifting to someone who is not your spouse, the amount remains $14,000 but that is a number that is combined among the gifts given to that person throughout the year. In most situations, any gifts to an individual other than a spouse that exceed $14,000 in total will be subject to federal gift taxes but there are certain instances where you may qualify for an exclusion, even if the amount gifted exceeds $14,000. Whether you qualify for such an exclusion or not depends on two factors; how the accounts are titled and whether the gifts are split between spouses.

If the gifts came from a marital joint account, the gift can be split between the spouses, cutting the gift amount in half for each spouse. Many times, this can make the gift non-taxable. If the account used for the gift is in just one of the spouse’s names, you must decide whether or not you want to split the gift. If you decide not to split the gift, it will be taxable and you will need to report it as a taxable gift to the IRS on Form 709. If you decide to split the gift, you will still have to report the gift to the IRS on Form 709.

Any gift given throughout the year that exceeds the annual exclusion amount of $14,000 is subject to federal gift taxes. However, there are certain circumstances in which you may give a gift totaling over the annual exclusion amount but still may not be required to pay taxes on the amount. Like estate planning, gift taxation planning is essential if you are planning on gifting over the annual exclusion amount to anyone. To ensure you have the right plan for your gift taxation, come see the experts at France Law Firm.

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