Federal Estate Tax and Florida Estates

Florida repealed its state estate tax in 2004, which means the vast majority of Florida families will never owe state-level death taxes. But the federal estate tax is a different story. For larger estates, it can consume 40 percent of everything above the exemption threshold. Understanding when it applies, how married couples can protect twice the exemption, and what strategies reduce exposure is essential for both executors settling an estate and families doing long-term planning.

Florida Has No State Estate Tax

This is worth saying plainly: Florida imposes no estate tax, no inheritance tax, and no pick-up tax. When Florida decoupled from the federal estate tax system and ultimately repealed its own estate tax effective January 1, 2005, it became one of the more favorable states in the country for wealth transfer. Beneficiaries in Florida pay no state-level tax on what they inherit, regardless of the amount.

This is a meaningful distinction if your family moved from a state like Massachusetts or Oregon, both of which impose state estate taxes starting at much lower thresholds.

The Federal Estate Tax Threshold

The federal estate tax applies to the taxable estate of a U.S. citizen or resident at death. For 2025, the exemption is $13.99 million per person. Estates below that amount owe no federal estate tax at all. Estates above it are taxed at a flat 40 percent on the excess.

What Is Included in the Taxable Estate

The IRS casts a wide net. The taxable estate includes:

All property the decedent owned outright (real estate, bank accounts, investment accounts, business interests)
Retirement accounts (IRAs, 401(k)s) — the full balance, not just the after-tax portion
Life insurance death benefits if the decedent owned the policy
Revocable living trust assets (since the decedent retained control during life)
Half of jointly held community property
Certain gifts made within 3 years of death (if structured to remove them from the estate)
Annuities with death benefits passing to beneficiaries

Property that passes to a surviving spouse qualifies for the unlimited marital deduction and is not taxed at the first death — but it will be part of the surviving spouse's estate unless proper planning is done.

Portability: Doubling the Exemption for Married Couples

One of the most powerful estate planning tools available to married couples is portability, which allows a surviving spouse to use the deceased spouse's unused exemption. For 2025, this means a married couple can effectively shelter up to $27.98 million from federal estate tax — if they follow the rules.

How Portability Works

When the first spouse dies, their estate files a federal estate tax return (Form 706) even if no tax is owed. The return makes the portability election and preserves the deceased spouse's unused exemption amount (DSUE). The surviving spouse can then add that DSUE to their own exemption.

Example: Husband dies in 2025 with a $4 million estate. His unused exemption is $9.99 million ($13.99M minus $4M used). Wife, who later has an $18 million estate of her own, can apply the $9.99 million DSUE, giving her an effective exemption of $23.98 million ($13.99M + $9.99M). Her estate owes no federal estate tax.

The Portability Deadline

The portability election must be made on a timely filed Form 706. The standard deadline is 9 months from the date of death, with an automatic 6-month extension available for a total of 15 months. Missing this deadline forfeits the DSUE permanently — unless the estate qualifies for a special simplified procedure available to estates that are not otherwise required to file a return. That simplified procedure allows a portability-only return to be filed within 5 years of death under Revenue Procedure 2022-32, but it requires affirmative action and is not automatic.

If portability matters to your family's situation, do not let the deadline pass without attention.

The 2026 Sunset: A Major Risk on the Horizon

The current $13.99 million exemption is a temporary provision created by the Tax Cuts and Jobs Act of 2017. Under current law, the exemption is scheduled to revert to approximately $7 million (adjusted for inflation) on January 1, 2026, unless Congress acts to extend or make the higher exemption permanent.

The practical implication: estates that are comfortably below today's threshold could become taxable under the lower post-sunset exemption. Families with estates in the $7 million to $14 million range should work with an estate planning attorney now to consider:

Making large gifts before December 31, 2025, to lock in use of the higher exemption
Accelerating trust funding or restructuring
Whether a spousal lifetime access trust (SLAT) or similar vehicle fits their situation

Congress may act to prevent the sunset, but relying on that is not a planning strategy.

When to File Form 706

Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, must be filed when the gross estate exceeds the filing threshold for the year of death. For 2025, that threshold is $13.99 million. The return is due 9 months from the date of death. A 6-month extension is available by filing Form 4768 before the original due date, giving a total of 15 months.

Even if no estate tax is owed, filing Form 706 is required to make the portability election. This is one of the most common planning opportunities that families miss when they assume no return is necessary because the estate is below the taxable threshold.

The personal representative (Florida's term for the executor) is responsible for filing Form 706 and paying any estate tax due. Tax is due at the original 9-month deadline regardless of whether an extension has been granted for filing the return.

The Step-Up in Basis Connection

Federal estate tax and income tax interact in an important way. Assets included in the taxable estate receive a step-up in cost basis to fair market value at the date of death. This means a beneficiary who later sells an inherited asset pays capital gains only on appreciation that occurred after the date of death — not during the decedent's lifetime.

For families with highly appreciated assets like real estate or stocks held for decades, the step-up in basis can be worth far more than the estate tax exposure. Our Step-Up in Basis guide explains this in detail.

Assets transferred during life (such as gifts) generally do not receive a step-up in basis, which is why giving away appreciated assets during life is not always the right strategy even if it reduces the taxable estate.

Strategies to Reduce Federal Estate Tax Exposure

For estates approaching the threshold, several strategies are commonly used:

Annual Gift Exclusion

Each person can give up to $19,000 per recipient in 2025 without filing a gift tax return and without reducing their lifetime exemption. A married couple can combine their exclusions (gift splitting) to give $38,000 per recipient per year. Over time, annual gifting can significantly reduce a taxable estate.

Irrevocable Life Insurance Trust (ILIT)

Life insurance owned by the decedent is included in the taxable estate. An ILIT removes the policy from the estate: the trust owns the policy, pays premiums with gifted funds, and the death benefit passes to beneficiaries without estate tax inclusion. This is a well-established technique for estates where life insurance is a major asset.

Irrevocable Trusts

Various irrevocable trust structures — Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs) — allow a person to transfer assets out of their taxable estate while retaining some economic benefit or control. These structures are complex and require experienced legal drafting.

Charitable Giving

Assets left to qualified charities are deducted from the taxable estate dollar for dollar. Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) can accomplish both philanthropic and tax reduction goals simultaneously.

Qualified Personal Residence Trust (QPRT)

A QPRT transfers a residence to an irrevocable trust at a discounted gift tax value. The grantor retains the right to live in the home for a term of years; at the end of the term the property passes to beneficiaries. If the grantor outlives the term, the full value is out of the taxable estate.

What the Personal Representative Must Do

If you are serving as personal representative and the estate may exceed the federal threshold:

Engage a tax professional immediately. Estate tax returns are complex. A CPA or estate attorney with estate tax experience is essential.
Obtain date-of-death valuations for all assets, including real estate appraisals and business valuations.
File Form 706 on time (or request an extension with Form 4768).
Make the portability election if the decedent was married, even if no tax is owed.
Do not distribute assets until you understand the tax liability and have reserved sufficient funds to pay any tax due.

Federal estate tax is a lien on the gross estate that attaches at death. The IRS can pursue the assets even after distribution if tax is not paid.

Frequently Asked Questions

Does Florida have an inheritance tax?

No. Florida has no inheritance tax and no estate tax. Beneficiaries in Florida receive inherited assets with no Florida tax obligation.

Is the federal estate tax likely to change?

The current exemption is set to decrease substantially in 2026 under current law. Congress may extend the higher exemption, but that is not guaranteed. Planning should not assume legislative action.

Do retirement accounts get a step-up in basis?

No. IRAs and 401(k)s are included in the taxable estate but do not receive a step-up in basis because beneficiaries must pay income tax when they withdraw funds. This makes retirement accounts among the least efficient assets to leave in an estate from a combined income and estate tax perspective.

What if the estate cannot pay the estate tax?

The IRS provides installment payment options for estates with a closely held business that makes up more than 35 percent of the taxable estate (IRC Section 6166). An estate tax professional can advise on qualifying and structuring the installment arrangement.

Related Guides

Sources:

"Instructions for Form 706," Internal Revenue Service, 2024, https://www.irs.gov/forms-pubs/about-form-706
"Revenue Procedure 2022-32 — Simplified Method for Portability Election," Internal Revenue Service, 2022, https://www.irs.gov/irb/2022-30_IRB#REV-PROC-2022-32
"Tax Cuts and Jobs Act of 2017 — Sunset Provisions," Public Law 115-97, 2017
"Florida Statutes — No State Estate Tax," Florida Legislature, 2024, https://www.flsenate.gov/

This guide provides general information about federal estate tax as it applies to Florida estates. Tax law is complex and subject to change. Consult with a qualified estate tax professional for advice specific to your situation.