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Florida retirees should plan to avoid estate taxes in home state

Every winter, the population of Florida swells with the ranks of people sometimes called "snowbirds." These individuals, often older, retired people, come south to escape the rigors of winter weather living, either to property they own, or to places that offer leases several months in length. While many of these people will have wills and other documents meant to settle their estates when they eventually die, there are factors that should be taken into account with regard to taxes that they might not have considered.

One such issue is that many states have estate tax schemes that activate well below the federal estate tax threshold of $5.25. Those who have residences both in Florida and their home state may find that the other state counts them as residents for the purposes of paying the estate tax, even if they spend the majority of the year in Florida. A second problem that can arise is the disparate effect of taxes on bequests of roughly equal value. For example, giving one beneficiary the proceeds of a life insurance policy, which is generally not taxable, and another the proceeds of a retirement account, which generally is taxable, may result in those beneficiaries receiving vastly different amounts even if the value of the accounts was similar.

Due to these, and many other complex issues, people who spend part of the year in Florida should make it a point to explore the tax and other legal ramifications of their estate plans. Various legal vehicles, such as trusts exist that can be used to avoid tax liabilities, and sometimes simple steps to establish residency in one state rather than another can help alleviate further concerns. Communication of one's wishes, both with beneficiaries and legal experts, is key to ensuring that loved ones will have less stress caused by financial concerns during the difficult process of grieving.

Source: Chicago Tribune, "Plan now to avoid inheriting a tax mess," Amy Feldman, Aug. 8, 2013