When the Bennetts retired to Naples from New Jersey, they assumed Florida would tax their estate the way their old state did. They were relieved to learn the truth: Florida is one of the most tax-friendly states in the country for estates. But “no Florida estate tax” does not mean “no tax at all,” and understanding the difference helped the Bennetts plan wisely.
Florida Has No State Estate or Inheritance Tax
This is the headline every Florida family should know: Florida imposes no state estate tax and no state inheritance tax. Florida’s constitution actually prohibits a state inheritance tax, and the old “pick-up” estate tax tied to a federal credit disappeared after federal law changed years ago. So no matter the size of the Bennetts’ estate, the State of Florida will not take a cut, and their heirs will not pay a Florida tax simply for inheriting.
The Federal Estate Tax Still Applies
The federal estate tax is a separate matter that applies regardless of which state you live in. It is a tax on the transfer of very large estates. The vast majority of families never owe it because of the generous federal exclusion amount, which shelters several million dollars per person from tax. Only the portion of an estate above that threshold is potentially taxable at the federal level. The Bennetts’ estate fell well under the limit, so federal estate tax was not a concern for them, but high-net-worth Florida families should monitor it.
Portability Between Spouses
For married couples, the federal system offers portability. When the first spouse dies, the surviving spouse can elect to carry over any unused portion of the deceased spouse’s exclusion by filing a federal estate tax return. This effectively lets a married couple shelter roughly double the individual amount. The Bennetts noted that portability is not automatic; it requires a timely filing, which is something many surviving spouses overlook.
Watch Out for Other States
Here is a trap the Bennetts almost fell into. Several states, unlike Florida, do impose their own estate or inheritance taxes. If a Florida resident owns real estate or tangible property located in another state, that property can be subject to that state’s death tax. Because the Bennetts still owned a rental property up north, they spoke with their advisor about whether to retitle or sell it to avoid exposure to their former state’s estate tax.
Income Tax and the Step-Up in Basis
Estate tax is not the only tax to consider. When heirs inherit appreciated assets, those assets generally receive a step-up in cost basis to fair market value at the date of death, which can dramatically reduce capital gains tax if the heirs later sell. The Bennetts factored this into decisions about whether to gift assets now or let their children inherit them later, since gifting can forfeit the step-up.
Why Residency and Domicile Matter
Because Florida is so tax-favorable, establishing genuine Florida domicile can be valuable for those moving from high-tax states. This involves more than a winter address; it includes things like a Florida driver’s license, voter registration, and a declaration of domicile. The Bennetts completed these steps to firmly anchor their tax home in Florida.
Talk to a Florida Attorney
Tax thresholds and portability rules change over time, and out-of-state property can complicate an otherwise simple Florida estate. Consult a licensed Florida estate planning attorney, ideally alongside a tax professional, to confirm where your estate stands and to plan for both the federal rules and any lingering ties to other states.
For more on our Florida practice, see our overview of powers of attorney in Florida. Morgan Legal Group's affiliated New York office also handles New York probate and estate administration.