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What is Legacy Law?

May 11, 2022 | Estate Planning Legal Blogs | Elder Law P.A

In general, the term “legacy” refers to a gift of an asset, property either in a will or by testament. Legacy is often used to refer to the disposition of either personal assets or property in the event of death. In simple terms, when you give an asset or property after death, it is termed legacy (or gift). In most states, including legacy law in Florida, there is no legacy (gift) tax but, depending on the size and value of the gift, there can be a federal gift tax. What is legacy law? There are three types of legacies differentiated: general, specific, and residuary. A legacy is considered General when there is not a specific amount or item set aside to gift. A Specific legacy is a specific item or specific sum of money to be given. A Residuary legacy refers to the entirety of the will that is not specified in some other direct way. A legacy can also be called a “bequest.”

What Is the Difference Between the Federal Gift Tax and the Federal Estate Tax?

The federal gift tax comes into play when you gift your property, money, or other assets while you are alive. The federal gift tax applies to the donor only if the value of the gift exceeds a certain amount. The recipient of the gift does not have to pay any taxes on the gift. However, in some cases, other taxes, like income tax, may apply if the property is a rental and receiving income.

The federal estate tax, on the other hand, comes into play when the property is passed on to the heirs (with the exception of a spouse) after the donor’s death. The federal estate tax is set after probate and can lower the amount of the estate available to the beneficiaries. The federal estate tax is usually paid out of the probate proceedings.

Florida’s Gift Tax

With the legacy law in Florida, you are not required to pay a gift tax when you transfer property or money to another individual. However, there are federal laws that require you to report any gift transfer and pay tax to the Internal Revenue Service (IRS), if the asset value is significant.

What is the Gift Tax Rate?

As such, Florida does not have a gift tax rate, but the federal gift tax rate is high and starts at 40 percent on certain gifts given to beneficiaries. If you’re going to be giving a gift that exceeds $15K a year, then you need to report it to the IRS. In most cases, because of a very high lifetime exemption, you will not need to pay any taxes. In general, the federal gift taxes usually apply only to very wealthy people; most average Americans will not have to worry about it.

Forms For Reporting

Since Florida has no gift tax, you don’t need to report it. No state tax collector will be sent to your home, so you do not have to worry about it. However, if your gift exceeds $15K/year, then you need to report it to the IRS using Form 709. An accountant or an estate lawyer can assist you with the tax filing. In addition, the estate lawyer can also advise some type of gift-giving strategy that meets your financial needs and does not trigger an IRS audit.

Gift Tax Calculator

What is legacy law? Because there is a federal tax on gifts, you first need to report it. Unlike other expenses, the donor of the gift cannot simply make gift deductions on the yearly federal tax income. You base the value of the gift on the current fair market value. For example, if you are gifting a 2020 Toyota Prius to your son, you need to check the blue book value of the car as the fair market value. You cannot empirically decide on the value of the gift; it has to have a market value assigned. Similarly, any real estate property must be priced accordingly. If you owe gift taxes, you are supposed to pay them by April 15 of each year, unless you have obtained an extension. The IRS does not take it lightly when tax payments are delayed; the agency is known to place heavy fines and interest rates on any outstanding taxes.

When Do You File Your Gift Tax Return?

In general, you are only required to file a gift tax return if the total value of the gift exceeds the annual gift tax exclusion, which is $15,000 a year per person. For each recipient, a separate exclusion has to be applied. Further, each spouse can give a gift of up to $15,000 or a total of $30,000 as a couple. The IRS does allow the spouses to split the gifts and file either as a single person or a couple.

If you do manage to go over the limit, that does not necessarily mean you have to pay a gift tax. One requirement from the IRS is that you must keep track of all your gifts so that you know if you have used up your lifetime gift and estate tax exemption. For a single person, the gift and estate tax exemptions total $12 million and, for a couple, it is $24 million. Even if you provide gifts of $15K to multiple people each year, you still are unlikely to reach the cap of $12 million. However, if you give real estate to family and friends, you can quickly go over the cap, and then the IRS will start taxing you.

Gifts That Are Not Taxable

What is the legacy law in Florida? In general, most gifts are taxable with a few exceptions. In general, if you pay the medical expenses or the cost of tuition for someone else, that is not taxable. However, the money has to be paid directly to the educational establishment or the healthcare facility; you cannot simply give the money to the recipient. The IRS will ask to see a receipt where the tuition or medical expenses were paid. Other gifts that are not taxable include:

  • Gifts to a spouse who is a U.S. citizen
  • Gifts to a political group
  • Gifts to a qualified charity

Other Florida Taxes

When making estate plans, everyone should consider the different types of taxes that they may encounter. Other taxes in Florida related to probate and estate planning include:

  • Death tax
  • Estate tax
  • Inheritance tax
  • Property tax
  • Transfer tax

CONCLUSION

What is legacy law? If you are regularly gifting people large amounts of assets or real estate, the best advice is to consult with an estate lawyer. Even though the tax exclusion cap is huge for most Americans, you can easily go over the cap by gifting large real estate properties. The federal tax would then apply, which often starts at a steep rate of 40 percent.

Because it is not always easy to remember all the new tax laws and rules, or the amount of taxes you have to pay, it is important to work with an attorney who specializes in estate law. An experienced attorney in Florida can help ensure that you avoid any legal mistakes and remain compliant with all your taxes, while at the same time meeting your long-term financial goals. An experienced Florida law firm, such as Elder Law, P.A., can help you take advantage of the gift taxes and devise legal ways to avoid paying unnecessary taxes. Call 1-561-933-4681 to learn more.

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