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Tax Planning FAQs

Tax Planning FAQs

Overview

  • Do I owe taxes on an inheritance I received?
  • How much can I give away “tax-free” each year?
  • Will my estate be subject to “death taxes”?
  • Is there an estate tax in New Jersey?
  • Is there an estate tax in New York?

Do I owe taxes on an inheritance I received?

Florida does not have estate or inheritance tax. However, a Florida resident may still owe taxes on inherited property if the value of the estate exceeds the federal estate tax limit or is located in a state that has an estate tax. The applicable laws vary between states.

There are three (3) main taxes to consider when it comes to inherited assets:

  • Estate Tax.

An estate tax is imposed on the estate of a deceased person and is paid for by the estate before any property is distributed to the beneficiaries. Florida does not have a state estate tax. However, federal estate taxes may still be due depending on the value of the estate. In addition, New York also has a state estate tax.

  • Inheritance Tax.

An inheritance tax is imposed on assets received by a beneficiary from a deceased person and is usually paid for by the beneficiary (not the estate). As mentioned above, Florida does not have a separate inheritance tax. However, if you are a Florida resident and you inherit real property located in a state that does have an inheritance tax, such as New Jersey, you may owe an inheritance tax to the state of New Jersey.

  • Income Tax.

Florida is one of the few states that does not impose a personal income tax on its residents. A beneficiary will not owe income tax on an inheritance. Additionally, inherited property does not count as income for federal income tax purposes.

Florida is one of the most tax-friendly states in the U.S. Florida’s freedom from “death taxes” and income tax, in combination with its warm weather and sandy beaches, makes the Sunshine State an attractive destination to relocate, especially for wealthy individuals wanting to reduce their tax liability.

Individuals relocating to Florida should consult with an experienced attorney to ensure they have properly abandoned their previous domicile in order to take advantage of Florida’s tax benefits. Upon relocating, it is important to update your estate plans (such as your will and other important documents) to conform with Florida law.

How much can I give away “tax-free” each year?

Florida does not have a gift tax. However, the federal government does enforce one.

The annual federal gift tax exclusion for 2021 is $15,000 per donor, per recipient. In other words, you can give $15,000 to as many people as you want without owing a federal gift tax. A married couple can gift double that amount ($30,000 per year) without any estate or gift tax consequences. 

The federal gift tax is imposed on transfers of money or property when the person giving the gift does not receive at least equal value in return. Generally, the person giving the gift pays any taxes that are owed which is based on the fair market value on the date of the gift. “Gifts” include money, real property, investments, and other tangible or intangible assets.

What happens if you make a gift over the annual exclusion amount?

Gifts over the $15,000 annual exclusion reduce the donor’s federal lifetime gift and estate tax exemption amount. The 2021 exemption amount is $11.7 million.

For example, if you gift $115,000 to your granddaughter this year, the first $15,000 is not taxable. The remaining $100,000 is subtracted from your $11.7 lifetime exemption amount, such that the amount that you can give away free of the federal estate tax will be reduced to $11.6 million.

It is important to consult with a lawyer if you are considering making a substantial gift. Remember, a “gift” is anything transferred to another person while receiving nothing or less than full value in return. An experienced tax and estate planning attorney can help you develop gift-giving strategies that will minimize or eliminate future tax liability while complying with all applicable laws and regulations.

Will my estate be subject to “death taxes”?

Luckily, Florida does not impose “death taxes” on its residents. However, your estate may still be subject to federal estate taxes.

Although the terms “death tax”, “estate tax”, and “inheritance tax”, are often used interchangeably, they do not all have the same meaning. There are two main types of taxes to consider:

  • Estate Tax.

An estate tax or “death tax” are taxes imposed on the value of assets you gifted during your lifetime or at the time of your death. Your estate is responsible for paying any owed estate taxes.

  • Inheritance Tax.

An inheritance tax on the other hand is levied on specific assets transferred to the beneficiary and the taxes are paid for by the beneficiary.

Not all states impose inheritance and/or estate taxes. However, regardless of which state you live in, there is a federal estate tax that may be owed depending on the value of your estate.

The federal estate tax only applies if the value of your estate exceeds $11.7 million at the time of death (or $23.4 million for a married couple). As mentioned, the decedent’s estate is responsible for the estate taxes, not the individual beneficiaries. The estate taxes must be paid before property is distributed to the beneficiaries.

A knowledgeable and skilled attorney can help you develop a strategic tax and estate plan to minimize the potential tax consequences for you and your family.

Is there an estate tax in New Jersey?

No, New Jersey does not have an estate tax, but it does have an inheritance tax.

What are inheritance taxes?

New Jersey imposes a graduated inheritance tax on a beneficiary that receives income or property from a decedent valued at $500 or more.

The amount of inheritance tax owed depends on several factors:

  • the relationship between the decedent and beneficiary—the closer the family connection/relation, the lower the tax rate
  • the type of asset(s) being transferred
  • the value of the asset(s) on the date of death
  • whether the decedent lived in New Jersey or another state

While the state of New Jersey does not have an estate tax, federal estate taxes may still be owed depending on the value of the estate.

In addition to federal tax responsibilities, there may also be state filing requirements and deadlines associated with an estate.

Considering the intricacies of the various applicable state and federal laws, it is important to consult with an experienced estate and tax planning attorney that can guide you through this process and help you take advantage of techniques to reduce future tax burdens on your loved ones.

Is there an estate tax in New York?

Yes, New York does have an estate tax.

New York’s estate tax is separate and apart from the federal estate tax. Even if your estate is not large enough to owe federal estate tax, you may still owe an estate tax to the state of New York.

Prior planning can help reduce or avoid taxes upon your passing.

What is New York’s Estate Tax?

Depending on the value of the estate, when a resident of New York dies, or someone with property located in New York, their estate may be subject to estate taxes.

The New York estate tax rate is lower than the federal estate tax rate. However, the way the taxes are imposed is significantly different from federal law. The federal estate tax is only assessed on the amount that exceeds the limit. However, New York estate tax is assessed on the total value of the estate. This is known as the New York estate tax cliff and it applies if the value of the estate is 105% of the New York estate tax exemption amount (i.e., $6,226,500).

The current New York estate tax exemption amount is $5,930,000 for 2021. This means that if the estate is worth less than $5,930,000 at the time of the death, the estate does not owe estate taxes to the state of New York.

If an estate earns income in a given year, the estate may also be subject to income taxes. The applicable laws vary between states and are constantly changing.

Proper estate planning is vital to your family’s financial well-being. Given the complexities of state and federal laws, it is crucial to consult with an experienced attorney to help you develop a comprehensive estate plan and efficient tax strategy.

Click here to read President Biden’s proposed changes to the federal tax law.