By Jay Goetschius - Managing Director, Head of Florida
June 21, 2022 - Families with the means and flexibility to choose where they live are often drawn to Florida with its warm winters, beautiful beaches, rich culture, and favorable tax code. If you are anticipating a liquidity event or a life change such as retirement, you may be wondering whether Florida is an advantageous place to call home.
Changing tax residencies can be a sound strategy provided you carefully consider the complete picture — how the move will affect your life, your family, and your comprehensive wealth plan. Moving from one state to another for tax purposes is a complex undertaking with logistical, legal, and financial steps to be completed. There may also be issues unique to your circumstances. To manage your relocation effectively, professional expertise and guidance are essential.
Pitcairn brings together resources to help you evaluate the pros and cons of moving to Florida, establish residency, maintain necessary records, adjust your wealth plan, and handle any complications that arise. Like all states, Florida’s tax and legal code has its idiosyncrasies. Below we highlight noteworthy items for families of wealth considering Florida for their new home.
Florida as a Tax Haven
Florida is especially popular for wealthy individuals and families due to its attractive tax profile, including no state income tax, no estate tax, and tax exemptions on primary residences (such as the homestead exemption, widow/widower exemption, disability exemption, and military/veterans exemptions, among others).
Florida also has a 3% annual limit on increases to the assessed value of a homestead, which helps to keep property taxes in check.
In addition to the tax advantages, Florida residents enjoy protection from creditors for their primary residence, life insurance proceeds and cash value, annuities, retirement accounts, and wages.
Establishing Residency in Florida
To capitalize on the advantages of Florida’s tax code, you must establish a domicile in the state. Your domicile is the legal residence you choose to call home, where you intend to return to whenever you leave it. It’s also important to show that you have terminated your residency in your former state where officials may be reluctant to lose you and your tax payments.
You must spend at least six months and one day in Florida. You should purchase or lease a home and make that physical address (not a P.O. box) your official mailing address for all legal and insurance paperwork, bank accounts, tax filings, passports, etc. You should also complete a Declaration of Domicile in the Florida county where you live, pay property taxes, and file for the homestead tax exemption on your Florida home. (Conversely, do not apply for homestead rebates/exemptions in other states where you own property.) To further validate your new Florida residency, register to vote, obtain a driver’s license, and register your cars, boats, and other vehicles.
Be sure that more subjective factors support your declared residency, such as where your minor children go to school, where your pets live, and where you keep treasured possessions. Develop civic, social, medical, and religious ties in Florida, while reducing connections and business activity in your previous state. For additional substantiation, it may be helpful to keep a record of informal dialogue about your move (emails/texts
While Florida may be your declared domicile, if you spend 183 days or more in another state where you maintain a home, you may unintentionally become a “statutory resident” of that state. You could then be subject to tax on all your income, whether sourced or not sourced in that state. Because miscalculating days in a given state could be costly, track your physical presence in all states throughout the year such as keeping plane tickets, toll receipts, credit card bills, etc. You can also harness technology for tracking. Cell phone, E-ZPass, and other electronic records will pinpoint your location — supporting or disputing your claims. Numerous phone apps such as Evernote make it easy to log travel with detailed comments and photos stored in one place for convenient future access.
Why Florida is a Tax Haven
Tap Local Expertise for Estate Planning and Other Guidance
You probably already work with a team of estate planning specialists, lawyers, and tax professionals, but we recommend you seek a local expertise when you move to a new state. Your wealth and estate plans are complex, and Florida’s laws have some peculiarities compared to other states. For example, Florida has unique regulations for estate planning documents, such as durable powers of attorney, health care surrogates, and living wills. Florida also has specific requirements as to who can be executor (“personal representative” in Florida) of your estate and how a primary residence passes to beneficiaries after the owner’s death.
Once you decide to make Florida your domicile, you will want to update your estate planning and other documents to conform with your new state’s regulations. Consulting experts familiar with Florida law will ensure everything is in order to achieve the outcomes you desire.
Making a Home in the Sunshine State
At Pitcairn, we often speak about the intersection of family and finance. Where you choose to live is one of the most consequential intersections. Before making such a significant life decision, talk to a total wealth management advisor who can evaluate how the move affects all aspects of your multi-generational wealth plan, including yearly tax liabilities, overall expenses, and estate matters. Plan well in advance because it is better to make a residency change in the tax year before a liquidity or other taxable event.
If you are considering a domicile change, please talk to your Pitcairn Relationship Manager. We have a checklist detailing critical steps to establish a domicile in a new state and reduce the likelihood of a residency audit in your prior state. We can help you make a well- informed, well-planned, and well-timed relocation so that you maintain Wealth Momentum® and make forward progress toward your family’s goals.