Why You Need a Life Insurance Trust Even Without Florida Estate Tax

There’s a reason that Florida is such a popular spot for retirees, and it’s not just the great weather or low cost of living. Florida has one of the lowest tax burdens in the nation. There’s no state-level income tax, nor are retirement or Social Security benefits taxed at a state level. On top of that, Florida is one of the few states that has neither an inheritance nor an estate tax.

If you’re lucky enough to live in Florida, then you won’t have to worry about estate tax, at least at a state level. Florida abolished its estate tax, commonly known as a sponge tax, back in 2005 and no one seems to miss it. Florida tends to cater to the retiree crowd because so much of its revenue is dependent on them, so it’s unlikely that estate tax will make a return there.

For the most part, the state of Florida relies on sales tax to keep its coffers full. Its friendly tax status makes it prime real estate for retirees. However, there are some hidden risks that wealthier Florida residents need to be aware of, especially if you’re considering just living there for part of the year.

The Risks of Relocating to and from Florida

Many retirees settle in Florida as a home state, but during those hot summer months, you might choose to go somewhere else. This is where you could run into trouble with estate tax. Snowbirds, or the residents who live in the state during the winter months and return to another state during the summer, are particularly at risk.

For example, say you go from New York to Florida throughout the year. If you stay in New York too long or own property there, you could wind up having to pay taxes either as a resident or for property you own there. While you might claim residency in Florida, New York’s Department of Revenue might see that differently. If you’re moving from one state with tax to one without, you need to have a plan in place.

Planning for Estate Tax with Life Insurance Trusts

Even though Florida has no state-level inheritance or estate taxes, you might still need to consider the cost of federal-level estate tax, and you may potentially have to deal with the estate tax from another state if you maintain multiple residences.

Irrevocable life insurance trusts (ILIT) can simplify this by removing money from your estate and putting it in a tax-sheltered account. An ILIT funded with universal life insurance policies will offer the following benefits:

  • An ILIT can become worth several times what was initially paid in when the policies are collected, allowing you to create a legacy for family members.
  • ILITs protect your heirs from creditors and judgments, as well as from estate tax, by moving money outside of your name.
  • ILITs can be used to simplify your estate when you live in multiple states where estate tax may apply in some cases and not in others.
  • ILITs can be used to create a pool of funding, which allows your family to pay for final expenses.

At Howard Kaye, many of our clients maintain dual residency in Florida and in another state. Even though Florida doesn’t levy estate tax, we often recommend that you use ILITs to preserve and expand your wealth and simplify the settlement of the estate you want to pass on. Our principal offices are in Boca Raton, so we have a lot of experience helping Florida residents. For more information on using an ILIT in Florida, contact us today at 800-DIE-RICH.