One of the most common questions asked of me when people learn that I am an estate planning attorney with offices in both Indianapolis, Indiana and Naples, Florida is “Are there advantages to becoming a resident of Florida?” Beyond the obvious lifestyle benefits afforded those who live in a warm climate, Florida domicile can provide a vast array of benefits. From my perspective as an estate planning attorney, the income tax, property tax, estate tax and asset protection planning advantages of Florida domicile make Florida the ideal place to live, whether you are still working or are retired.
The most widely recognized financial benefit of Florida domicile must certainly be the extremely favorable tax environment. The fact that there is no Florida state income tax requires little explanation to communicate the benefits. However, it is appropriate to delve into the details of the taxes that may affect you if you choose Florida as your state of domicile.
Due to federal tax laws, Florida does not currently collect a state estate tax. It is important to note that Florida’s state constitution requires a constitutional amendment to add or modify a statewide tax. While other states may pass laws that will result in additional state estate tax liabilities, Florida is extremely unlikely to do so because of the constitutional amendment required.
Florida does not assess real estate taxes on real property. However, every county and municipality in Florida collects real estate taxes on the value of real estate within its borders. These taxes are assessed each year based upon the property values on January 1. The counties and municipalities each determine their own rate of tax. The taxes are due by April 1 of each year for the prior calendar year and, if paid early, may result in a discount of as much as 4%.
For those domiciled in Florida, a $50,000 exemption from real property tax is available for their primary residence. In order to claim the homestead exemption, the homeowner must claim the home as their primary residence and be domiciled in Florida on January 1. For those who qualify, an application for the homestead exemption must be filed no later than March 1 in order for it to apply to taxes assessed for that particular year.
In order to apply for the homestead exemption, the qualifying homeowner must appear in person at the county property appraiser’s office. Generally, in order to apply for the exemption, you must produce a copy of the warranty deed or tax bill for your property, your social security number, your Florida driver’s license, automobile registration showing the license plate number, and your voter’s registration card. If the property is owned jointly, both owners must appear in person to claim the exemption.
The most significant financial benefit provided to those who file for the homestead exemption results from the “Save Our Homes” (SOH) Amendment to the Florida constitution. The SOH amendment caps the percentage increase of the assessed value of any residence that qualifies for the homestead exemption at 3% per year. As a result, those claiming the homestead exemption are able to avoid significant annual property tax increases that have been experienced by many who do not qualify for the homestead exemption.
Every county in Florida requires that documentary stamps (often referred to as “doc stamps”) be affixed to all deeds before they can be recorded. In most counties, the cost of the stamps for the conveyance deed is equal to .70% of the consideration given for the sale.
Additional documentary stamps are required when the property is mortgaged. Those stamps cost an additional .35% of the face amount of the mortgage. In addition to the documentary stamps, the State of Florida imposes an intangible tax on the recording of the mortgage equal to .2% of the face amount of the mortgage.
The documentary stamp costs for the conveyance deed are paid by the seller, and the documentary stamp costs and intangible tax associated with the mortgage are paid by the purchaser.
Because the State of Florida does not have an income tax, much of its revenue is generated by sales and use taxes. The Florida sales tax is assessed on the sale of all tangible personal property. Several exceptions apply. The tax rate is 6% of the purchase price. Sales taxes do vary from county to county as each county may also charge a sales tax.
Unlike many other states, Florida also collects a tax on many services within the state or out of state for use in Florida. The tax rate is equal to 6% of the cost of the service.
Unlike many states, Florida does not impose a gift tax.
In addition to the many tax advantages provided to those who are domiciled in Florida, there are also a number of estate planning advantages that are available to those who plan ahead. Furthermore, there are a number of estate planning issues that should be addressed when you change your domicile to Florida.
The most common estate planning concern of those who change their domicile to Florida is whether their previous estate will and trust remain effective in Florida. Your out-of-state will and trust remain valid after you change your domicile to Florida provided the documents were executed according to the requirements of the state in which you were domiciled at the time it was signed. Regardless, before changing your domicile you should have your plan reviewed by an attorney licensed by the State of Florida.
Despite the fact that your plan may remain valid upon changing your domicile to Florida, it will not necessarily work as you intended. For example, transfers of homestead property in Florida are subject to restrictions imposed by the Florida constitution. As a result, despite careful drafting of a provision in your out-of-state will or trust concerning your homestead property, any such provision will most likely be invalid in Florida. Again, proper planning can avoid such an unexpected result.
Additionally, Florida law provides a spouse with an election to take a substantial amount of a deceased spouse’s property despite provisions to the contrary in that person’s will or trust. This spousal election can be an important planning factor, especially in second marriage situations. Proper planning can avoid this result. However, to be assured that the spousal election does not result in problems, this issue must be addressed before becoming domiciled in Florida.
As an initial matter, you must understand that your state of “domicile” is not necessarily the same as your state of “residence.” While you can have only one state of domicile, you may have residences in several states or be a “resident” of more than one state. To establish domicile in Florida, you must maintain a residence within the state and you must intend to make Florida your permanent home.
You have likely heard that there are many more requirements to establish Florida domicile. Technically, that is not true. Instead, because domicile is a question of whether you intend to make Florida your home, courts often look to more objective factors to determine your true intent.
The following are a few of the objective factors that are often relied upon by courts when determining a person’s true intent to become domiciled in Florida. Therefore, among other actions, you should complete the following activities when changing your domicile to Florida:
Although persons domiciled in Florida are not subject to Florida income taxes or Florida inheritance taxes, failure to properly change your domicile to Florida can result in claims by your former state of domicile that you are still subject to that state’s income and inheritance taxes. Therefore, in order to avoid future conflicting claims by taxing authorities, it is crucial to clearly establish your new domicile in Florida and to eliminate any argument that you are domiciled in another state.
We appreciate the opportunity to provide this comprehensive article to you, and I hope the information provided herein fuels your desire to make Florida your home. While I must caution against simply relying upon this article when analyzing the financial benefits of Florida domicile or when making your personal domicile decisions, my office will be pleased to schedule a meeting to assist you in assessing the advantages of Florida domicile.
In the meantime, we recommend downloading the Step-by-Step Domicile Plan for your Current State at www.ChangeMyDomicile.com.
The State Specific Step-by-Step Domicile Plans were created by our managing partner Brad Galbraith, Esq., CPA to provide clarity and help take the stress out of changing domicile. Each plan provides state law analysis and a detailed timeline of the key steps you should complete to successfully change your domicile.