Federal Estate Tax 101: What Floridians Should Know

What Floridians Should Know About the Federal Estate Tax

The phrase “federal estate tax” might send a shiver down your spine, especially if you’re not entirely sure what it entails. Fortunately, many estate administrators in Florida will find that their estate is actually exempt, or at least qualifies for some deductions. Here’s what you need to know if you have been left in charge of a loved one’s estate.

First: There Is No Florida Estate Tax

Before discussing the ins and outs of federal estate taxes, I’d like to make it clear that Florida does not currently collect a separate state estate tax. Florida has never collected anything that has been labelled as an estate tax because our state constitution prohibits legislators from enacting one. Before 2005, Florida collected a “pick-up tax” that was a percentage of the calculated federal estate tax, but this was phased out due to changes at the federal level.

How the IRS Calculates Federal Estate Taxes

Federal Estate Taxes
To calculate the tax on an estate, the IRS will first look at the “Gross Estate” value. This consists of everything that the decedent owned or had certain interests in (such as business interests, stocks, and bonds held only in the decedent’s name), added up at the fair market value. Fair market value simply means what the assets are worth on the date of the decedent’s death as opposed to how much they were worth when the decedent first purchased them (a painting or a wine collection, for example, would likely appreciate in value).

When the decedent has joint ownership of an asset with a surviving spouse, only a percentage of the asset’s value is included in the Gross Estate. For example, if a house was in the joint name of the decedent and their surviving spouse, only 50% of the house’s value will be added to the Gross Estate. It’s important to note that the Gross Estate will also include any assets placed in a trust if the decedent is the beneficiary or has “general power of appointment.”

Once the Gross Estate is determined, the IRS will look at the Taxable Estate. This differs from the Gross Estate because there may be certain deductions, such as:

• Mortgages and other debts
• Estate administration costs
• Real estate that passes to a surviving spouse
• Certain charitable contributions
• Operating business interests or farms

After calculating all the available deductions, the value of lifetime taxable gifts is added in to get to the final estate tax.

Why You May Not Have to File an Estate Tax Return

Why You May Not Have to File an Estate Tax Return
In 2013, Congress and President Obama passed the American Tax Payer Relief Act, which brought back the federal estate tax with a maximum rate of 40% of the estate value. However, most simple estates do not have to worry about filing an estate tax return because the IRS gives every US citizen what essentially amounts to a “coupon” that covers the estate’s value. The value of this credit is adjusted every year based on inflation. As of 2014, the value is $5,340,000, which means if the Taxable Estate is valued at less than $5.34 million, the estate administrator will not have to file an estate tax return.

What You Must Do If an Estate is Taxable

If you’re the personal representative of an estate that does exceed the $5.34 million limit (or whatever specific limit is set the year the decedent passes away), you will need to fill out Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. You are required to file the form (and pay the estate tax) within 9 months of the decedent’s death; however, you can request a 6-month extension if complications arise and you are unable to submit the form by this time. Estate taxes can now be paid both by check and electronically.

Unsure Whether an Estate is Taxable? Talk to a Probate Attorney

Federal estate tax law and its exemptions change frequently, so figuring out whether an estate in Florida is actually taxable can be understandably confusing if you don’t have a background in probate law. If you’ve been named the personal representative of an estate, you should contact a probate attorney as soon as possible, since you have a limited amount of time to file a federal estate tax return.

Your probate attorney can bring you up to date on current laws and help you determine if the estate is eligible for any deductions that you may have missed. Ideally, you’ll end up not having to file a federal estate tax return at all.

About the Author:

Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.