Taxes are a common concern in estate planning. Clients frequently ask us questions like, “How do I reduce the tax burden for my heirs?” Or, “Can I arrange my estate so my heirs pay little or no taxes?”
The answer depends on your specific situation, but in most cases, it is possible to reduce the potential taxes your heirs will owe if you plan carefully. However, the options can be complex, and not every solution will work for every situation. If you want to focus on reducing taxes for your heirs, we recommend speaking with an experienced estate planning lawyer as soon as possible.
Options for Reducing Estate Taxes
In this section, we’ll discuss some common strategies to reduce inheritance taxes for your heirs. Please remember that every situation is different, and your estate planning attorney can advise you on the best solutions for your estate.
The Florida Homestead Exemption
Under the Florida Homestead Exemption, the first $25,000 of your home’s value is exempt from property tax.
In some situations, you may also be eligible for a second exemption on the value between $50,000 and $75,000, which would make the exemption $50,000. The remaining value of the property is taxable.
You do need to meet certain eligibility requirements, and the exemption applies only to your primary residence. Married couples share an exemption, so if you and your spouse own two properties, you can still only receive the exemption on one of them.
If your spouse survives you and inherits your home, they can continue to receive the Homestead Exemption. However, if your children or other relatives inherit the house, they will need to apply for a new exemption (if they have made the home their primary residence and meet other requirements).
The Annual Gift Tax Exclusion
Have you ever considered giving a loved one part of their inheritance now? For some people, it makes more sense to help their children or heirs now, rather than to leave them something in the future. This is often an appealing idea if a family member is struggling or needs money for a specific purpose, such as paying for college or buying a home. Inheriting from your estate in ten or twenty years may not benefit them as much as receiving some of that money right now.
Making a gift during your lifetime can also be beneficial from a tax standpoint, provided that you know the rules and how much you can gift tax-free.
The federal gift tax exclusion allows you to gift another person a certain amount of money each year that the recipient doesn’t have to pay federal taxes on. What’s important to understand is that this amount is subject to change annually. For the year 2026, the federal gift tax exclusion amount is $19,000, but it might be different in 2027 or 2028.
Another key aspect of this law is that it’s tied to the calendar year. Any money you gift a person in one year counts toward the annual tax-free limit. So, if you give your son $5,000 in March, $3,000 in September, and $10,000 in December, you would be at $18,000 for the year, and your gifts would be tax-free.
Now, let’s say that your son needs another $3,000 to pay for some equipment he needs to start a business. If you give him the whole $3,000 before the end of December, $2,000 will be taxed. However, if you give him the money on January 1, it will count toward the limit for 2027 and will not be taxed. Or, you could give him $1,000 in December and the remaining $2,000 in January.
Using Trusts to Provide Tax Protection
While making lifetime gifts is a great option, most people will still have assets they wish to pass on after their death. For these assets, we sometimes recommend setting up a trust. This is an entity that you can move assets into, producing several benefits.
One benefit is that assets in a trust pass to their beneficiaries outside of probate. When creating the trust, you can provide instructions for the trustee to distribute assets to various heirs following your passing. This allows the beneficiaries to receive their inheritance sooner than they would if they had to wait for the probate process to be completed.
The second benefit is often in the form of lower taxes. There are several different ways to structure a trust, and each of them has different implications for taxes. If your concern is reducing your heirs’ tax liability, an estate planning lawyer can explain the best options for your circumstances.
Retirement Account Planning
One question we ask all new clients, or returning clients who wish to review their existing estate plans, is about retirement accounts. We ask them to check all their retirement accounts and ensure they have designated beneficiaries. When you assign a beneficiary for a retirement account like an IRA, this money passes to the beneficiary outside of probate. Again, this is faster and more efficient, in addition to helping your heirs avoid inheritance taxes.
However, it’s important to know that once your heirs withdraw money from a retirement account, that money is usually taxed as income. While you can’t change that taxation, an attorney can advise you about limiting how much you withdraw at once to minimize the tax liability. In some cases, we may also advise you to change what type of retirement account you have for additional tax benefits.
Think About Charitable Giving
If there are any nonprofits you’d like to support, talk with your estate planner about how you can make charitable gifts and reduce your taxable estate. You may also qualify for income tax deductions for charitable gifts made in your lifetime.
FAQs
How many people can you make a tax-free gift to in one year?
Another fact about the gift tax exemption is that there are no limits to the number of people you can give a tax-free gift. So, if you wanted to, you could give up to $19,000 to each of your friends and family members this year, and none of them would be taxed, so long as you did not gift more than $19,000 to any one person.
Is it true that Florida has no estate tax?
Florida has no state estate tax, but Florida residents may still be subject to federal estate tax. However, this mainly applies to very large estates, so many people who inherit from an estate in Florida don’t pay a federal estate tax, either.
Learn More From a Florida Estate Planning Attorney Today
If you want to minimize the tax liability from your estate, or you have other questions about estate planning, we recommend talking to an estate planning professional. Please contact the Law Offices of Rina Feld for a free 15-minute phone consultation about estate planning in Florida.