Will your wishes be fulfilled when you are no longer around?

Stephen J. Lacey
| Guest columnist

Estate planning is essential to ensure that your assets are managed and distributed in accordance with your wishes. A key part of this process is understanding and preparing for the tax liabilities your estate may face.

Property taxes and laws can change over time, which can significantly impact your plan if not taken into account. Working with a skilled attorney will help you keep up with these changes, allowing you to adapt your strategy and minimize your tax burden while preserving as much of your estate as possible for your heirs.

Florida Property Taxes

Fortunately, Florida does not impose property taxes on its residents. However, Floridians are still subject to federal property taxes and must plan accordingly to remain compliant.

Federal estate tax

The U.S. federal estate tax applies to the transfer of assets upon the death of a loved one and is based on a tax rate ranging from 18% to 40%. The federal estate tax does not apply to estates worth less than $13.6 million for individuals or $27.2 million for married couples. The exemption amount is adjusted for inflation every year; for example, in 2023 it was $12.92 million.

If the inheritance exceeds these thresholds, the excess is taxed at progressive rates. Please note that changes to real estate tax regulations are expected in 2026, which may affect limits and exemption rates. That’s why it’s important to constantly review your estate plan to make sure it complies with the latest tax rules.

How to Minimize Your Federal Estate Tax

There are many strategies you can implement to effectively manage and minimize your federal estate taxes, ensuring that more of your estate passes to your beneficiaries in accordance with your wishes.

Establishing an Irrevocable Trust: An irrevocable trust is a trust that, once established, cannot be changed or revoked by the entity. When you transfer assets to an irrevocable trust, those assets are removed from your taxable estate, which can significantly reduce the overall value of the estate and therefore minimize future estate taxes that your loved ones could be responsible for.

There are different types of irrevocable trusts that can help you manage and minimize your estate taxes. For example, a family trust, also known as a living trust, allows you to pass assets to your beneficiaries while retaining control over how those assets are managed and distributed. Irrevocable Life Insurance Trust (ILIT) holds life insurance policies so that the death benefit does not go to your estate.

Another type, a Qualified Personal Residence Trust (QPRT), allows you to transfer your home to the trust while retaining the right to live in it for a specified period of time, which may reduce the value of your property for tax purposes.

These trusts offer a variety of benefits, including reducing your taxable estate and providing resources for your loved ones. To determine which irrevocable trust best suits your needs and goals, you should consult with an estate planning attorney who can guide you through your options and help you tailor a plan that is right for your situation.

Gifts: How does it work?

Another effective strategy for reducing estate taxes is to gift assets during your lifetime. By transferring assets to your family now, you can potentially help them avoid significant estate taxes in the future. Under current federal gift tax rules, starting in 2024, you can make a gift of up to $17,000 per person each year without incurring gift tax. Additionally, there is a lifetime gift tax exemption of $13.6 million for 2024. This allows you to give away more than the annual limit during your lifetime without incurring gift tax as long as the amount does not exceed this exemption threshold .

Charitable donations: An additional way to reduce your estate tax is to donate a portion of your estate to a charitable organization through specialized trusts such as a Charitable Lead Trust (CLT) or a Charitable Remainder Trust (CRT). The main difference between these two types of trusts is who receives the income during the trust’s term and who receives the remaining assets after the trust ends.

A CLT allows you to gift assets to a tax-free charity during your lifetime, which not only reduces the value of your estate but also provides tax relief. The charity receives income from the trust for your lifetime, and when you die, the remaining assets go to your beneficiaries.

A CRT, on the other hand, distributes income between you and your chosen beneficiaries over your lifetime. Upon your death, the remaining assets of the CRT will be distributed to the charity. This type of trust can be a great way to support charitable causes while also providing for your family.

Estate planning is an extremely important step in life. When planning, it is important to understand and prepare for the tax liabilities your property may face.

Stephen J. Lacey, JD, LLM, is a member of the law firm of Lacey Lyons Rezanka. His practice areas focus on estate and estate planning.