What to Know About Taxes During Florida Probate
The probate process can be confusing and time-consuming in the best of circumstances. Estates are complex, after all, as are the processes required to settle and administer them.
Unfortunately, these complications are often amplified by tax issues. Estate taxes, in particular, can be a significant source of concern among some beneficiaries, who worry that asset transfers will be strongly impacted by various estate taxation laws and protocols.
This is not always the case, however, and in Florida, many beneficiaries are able to avoid estate and inheritance taxes altogether. Meanwhile, obligations regarding income taxes may be surprisingly straightforward. Still, tax requirements can be confusing given the nuanced role of federal income taxes after death — and especially given the potential for paying federal estate taxes.
When in doubt, strong legal guidance is advisable. After all, the probate process can be frustrating even without the added complications of tax policies. Skilled attorneys can guide these processes to help protect personal representatives and to ensure a straightforward probate process, taxes and all.
Not sure how to proceed? A basic overview of tax obligations (in the context of probate) can help. Keep reading to learn how taxation plays into the Florida probate process — and to discover which strategies should be implemented to navigate top tax concerns.
Probate Versus Estate Taxes
Much of the confusion with taxes (especially estate taxes) during probate stems from the understandable difficulties faced by beneficiaries or personal representatives trying to distinguish these concepts. That being said, while there can be some overlap, these are distinct obligations and processes and may not even be applicable in all situations.
Probate represents an important legal procedure that determines how estates are administered after the person who owns the estate dies. Yes, this may encompass filing tax returns and paying any taxes owed, but there’s a lot more involved: inventorying the property in question, paying any other debts, and finally, distributing remaining assets according to stipulations from the will of the deceased person (otherwise referred to as the decedent).
Taxes may be levied on the estates that are to be administered during probate. These are typically determined based on the estate’s value. They are separate from income taxes, however. Many estates undergo probate without being subject to estate taxes. Similarly, some estates are able to avoid probate (typically through the targeted use of trusts) but may still be required to pay estate taxes.
No Estate Tax in Florida
It is important to examine taxes at the state level, as estate tax and other probate-relevant policies can vary dramatically from one state to the next.
The good news? Florida lacks estate or inheritance taxes, so taxes should not be imposed by the state when somebody passes away and when assets are transferred as a result. This applies regardless of the value of the estate in question. In Florida, estate taxes were officially repealed in 2004 — and this has significantly impacted the probate process through the years.
The circumstances underscoring Florida’s lack of estate tax are complex, but this reflected changes at the time regarding federal tax credits versus deductions.
Dealing With Federal Estate Taxes
Florida may not mandate estate or inheritance taxes at the state level, but this does not mean that they can be avoided entirely. After all, estate taxes still exist at the federal level and are relevant in many situations.
While these federal estate taxes will not influence most Florida estates or probate cases, they come into play once levels for the current federal estate tax exemption have been exceeded. As of 2024, this reached $13.61 million for individuals or $27.22 million for spouses. Estate taxes are assessed based on the extent to which assets exceed this threshold.
If federal estate taxes are assessed, these must be paid from the estate’s assets before remaining assets are eligible for distribution to heirs. An important consideration: Trusts may be used to avoid some of the complications of probate, but they do not necessarily prevent estate taxes from being assessed.
Should estate taxes be required, relevant forms can be filed (and payments made) following a creditor period, in which other claims are made and fulfilled. At this point, additional tax obligations (such as debts to the IRS) may need to be handled as well. Because these are highly individual — and often, highly complicated — it may be helpful to work with a probate attorney during this phase of the probate process.
Other Tax Concerns During Probate
While estate taxes typically receive the majority of the attention, there are a few other tax concerns that could potentially play into the probate process. Tax returns, in particular, must be considered. As the Florida Bar points out, the death of the decedent “ends the decedent’s last tax year for purposes of filing the decedent’s federal income tax return” while also establishing the estate as a new tax entity.
Depending on the estate in question, the personal representative may be responsible for filing a final Form 1040 (US Income Tax Return) or Form 1041 (US Income Tax Return for Estates and Trusts). Sometimes, it may also be necessary to file forms reflecting gifts made by the decedent prior to his or her death.
Anything owed to the IRS by the decedent must be paid by the personal representative, typically by using the remaining assets from the estate. In most cases, the personal representative will not be personally liable for taxes owed by the decedent, although exceptions are possible and related risks must be considered.
Working With a Florida Probate Lawyer
While Florida’s lack of estate and inheritance taxes can simplify probate to some extent, there are still many other complications to be considered — including, in some cases, the potential for federal estate taxes.
Whether or not these are imposed, it is important to work closely with a Florida probate lawyer while navigating this complex process. A skilled attorney can provide helpful guidance every step of the way and, ultimately, deliver valuable peace of mind.
Sources:
https://www.kiplinger.com/taxes/estate-tax-exemption-amount-increases
https://floridarevenue.com/taxes/taxesfees/Pages/estate_tax.aspx
www.floridabar.org/public/consumer/pamphlet026/#whatisprobate