Estate tax rates are all the rage in the political sphere, but you may be wondering, “Do I actually need to worry about the estate tax as a Florida resident?” After all, Florida does not impose any estate tax at the state level, and the federal estate tax limits are very high, currently sitting at $11.7 million per individual person or $23.4 million for a married couple. Floridians who are careful with their estate planning, however, may have heard of proposed changes that would lower these limits. A bill introduced to Congress in March 2021 proposes that the exemption be lowered to $3.5 million per person or $7 million for a married couple. While this means more people will be subject to the federal estate tax, there may be several ways to limit its impact. Let us discuss some estate planning tips regarding irrevocable trusts for Florida married couples who may be nearing the proposed estate tax exemption limits.
If you are nearing the federal estate tax limits you might consider an irrevocable trust that will shield some of your assets. You might wish to explore a Spousal Lifetime Access Trust (SLAT). A SLAT permits one spouse to make a gift to the trust for the benefit of the other spouse. Any appreciation of assets gifted to the trust will be excluded from the estate of both spouses for tax purposes, removing the need for the surviving spouse to pay tax on the capital gains. It can be important to understand that you cannot take money back once you put it into a SLAT, even if you ended up divorcing, so this option is probably best for a couple in a long-term marriage.
Another option for married couples may be a life insurance trust. An ILIT owns a life insurance policy, or policies. When each spouse dies, the proceeds from the insurance policy, or policies, will go into the trust, and the trust will pay out according to the trust agreement. One benefit of an ILIT is that it can own a “second to die” life insurance policy, where the lives of both spouses are insured, but a death benefit is paid only upon the death of the second spouse. If you choose to fund an ILIT it is important that the trust pay all life insurance premiums and costs. Because the trust owns the policy proceeds, the money is not included in your taxable estate, so if you are nearing the federal exemption limits this may be a good way to keep that money out.
Are you interested in learning about more estate planning tips that can help protect you and your loved ones? Please reach out to our office to schedule an appointment.