When you receive an inheritance from a resident of Florida, you do not have to pay state-level estate taxes or inheritance taxes.
The state of Florida does not have a separate estate tax. However, the federal government has an estate tax that applies to all states if the entire inheritance exceeds a set amount.
Who pays the federal estate tax on an inheritance?
If your loved one’s entire estate is worth more than $11.7 million, the government requires an estate tax. The estate must pay the taxes before distributing the assets to the beneficiaries according to the person’s trust agreement or will. This requirement can cause potential problems if the estate contains predominately liquid assets. When you help your family member with estate planning, you want to consider whether the property will be subject to a federal estate tax.
What are some potential tax concerns for Florida beneficiaries?
Although there is no inheritance tax in Florida, there are some instances where you may pay taxes. Some situations where taxes are applicable include:
- You receive life insurance benefits from a large estate. The amount of life insurance paid out is part of the total estate value and may require a federal estate tax.
- You withdraw the funds from an inherited 401k or IRA. Whether it is the owner or the beneficiary, removing money from these plans is always subject to taxes.
- You receive benefits from investment accounts or pension plans. These types of funds may also be taxable. Before removing the funds, you should understand the relevant tax laws.
Although Florida is a tax-friendly state, there are still things to consider when making an estate plan. Understanding the laws regarding the transfer of an estate helps reduce tax liabilities for beneficiaries.