Establishing A Florida Domicile
How Our Boca Raton Estate and Trust Attorneys Can Help
Florida, known as the Sunshine State, has many natural and man-made attractions. Florida’s tax and creditor protection laws are also attractive. For these reasons, many wish to establish domicile in Florida, and below we discuss some helpful considerations when deciding to become a Florida domiciliary (or resident).
Establishing domicile in Florida is simple; you merely have to decide that you have the intent to make Florida your home. There are no technical requirements. However, proving that you are no longer a resident of the state that you left (which we refer to as the “former state”) is a bit more challenging.
Why is it Important to Establish you are a Resident of Florida?
Generally, a state can only tax its non-residents on income from or assets in that state. When you are no longer a resident of a state, and if you will no longer have income from or assets in that former state, it loses its ability to tax you. Thus, to prevent the loss of revenue from your departure, the former state may attempt to treat you as a resident, unless you prove otherwise. Establishing that you are a Florida resident proves that you are not a resident of the former state!
Actions to Consider Showing you are a Florida Resident
Given the subjective nature of a person’s decision to change residency to Florida, courts and taxing authorities generally look to objective criteria (i.e., steps one took) to illustrate one’s intent to become a Florida resident. Based on experience, here is a list of steps you should consider taking when considering making Florida your home:
- File a “Declaration of Domicile” in the Office of the Clerk of the Circuit Court for the county of your new residence. You should be able to get this form at the county’s website.
- Obtain a Florida driver’s license, as soon a possible.
- Register to vote in Florida and then vote, as soon as you are eligible.
- Change the registration of your automobiles (i.e., obtain Florida license plates for your cars).
- Notify the Internal Revenue Service that your new mailing address is in Florida. This can be accomplished by filing Form 8822 (“Change of Address”).
- In the year you make Florida your domicile, begin filing your federal income tax returns with the IRS Center where Florida residents file.
- Consider owning a home in Florida. If you own the home, then apply for the Homestead Exemption. You can apply for your Homestead Exemption at various locations in the county of your residence (e.g., the local real estate tax department, the clerk of the court, and/or local driver’s license bureau).
- If you rent a home in Florida, consider a longer term lease (generally at least a 12-month duration).
- Update your estate planning documents (e.g., your will, revocable trust, durable powers of attorney – for finances and health – and your living will), and establish in those documents that you are a “resident of Florida.” Generally, you are best advised to have a lawyer who is a member of the Florida Bar and experienced in estate planning (specifically for Florida residents) to advise and prepare the documents. The experienced Boca Raton estate and trust attorneys at the Walser Law Firm can help you with preparing these documents.
- Consider transferring financial relationships to a Florida advisor.
- Consider opening a safe deposit box at a Florida financial institution and storing valuables there.
- Consider establishing relationships with Florida health providers (doctors, dentists, ophthalmologists, etc.).
- If you are involved in any business transactions, recite that you are a resident of Florida in any legal documents.
- If you receive Social Security or any other federal benefits, notify those federal agencies of your move to Florida.
- When possible, spend as much time in Florida. Generally when making significant trips, you should consider departing from Florida (versus departing from the former state).
- When traveling out of Florida, when registering at hotels and other boarding establishments, use your Florida address as your “home” address.
- When having casual conversation, get in the habit of calling Florida “home.”
- If you are involved in civic, religious or charitable organizations, consider changing your affiliations to Florida organizations.
Common Do’s and Don’ts Related to Your Former State of Residence
The following is a suggested list of do’s (and don’ts) to help demonstrate you are no longer a resident of the former state:
- File a declaration of non-domicile with the former state, if available.
- Give up your driver’s license in the former state (once you have obtained your driver’s license in Florida).
- Have your name removed from the voting rolls of your former state.
- If the former state has an income tax, in the year you become a Florida resident begin filing as a “non-resident” of the former state. And, file a “Final Return” when you no longer have income in the former state
- Stay out of the former state for at least six months each calendar year. Certain states (not Florida) presume that you are a resident of that state if you resided there for more than six months.
- Consider selling your old home. Selling your former family home is both an emotional and financial issue. Thus, discuss this decision with your loved ones, as well as your estate planning, tax and financial advisors.
- If you were involved in civic, religious or charitable organizations, consider reducing any leadership roles and keep a lower profile in those organizations.
- Do not run for a politically elected position in the former state. Holding a political office typically requires that you are a resident of that state.
- Do not avail yourself of certain “discounts” that are only available to residents of the former state. For instance, in many states, residents receive an exemption (or reduction of real property tax) on their homestead. If you leave the state, notify the state and give up any such resident benefit (such as the homestead real estate tax exemption). Generally, one’s homestead is the primary residence used by that person as their established place of living.
Consult with Counsel of the Departing State
In the process of becoming a Florida resident, there may be a number of steps and items that you should or should not take because of issues specific to the former state.
Since each state has its own “residency” or “non-residency” rules, you should seek the advice of counsel who is experienced in these matters to advise you on how you can effectively dislocate yourself from the former state’s authority to tax you.
Former State’s Probate and State Death (or Estate) Tax Issues
Becoming a Florida resident does not automatically eliminate probate or state estate tax issues related to the former state. For instance, if you decide to keep your home in the former state (as a vacation home), it is possible your estate will be subject to some form of probate in the former state. Additionally, owning property in the former state exposes your estate to that former state’s death taxes. Depending upon your personal situation, proper planning can mitigate the potential probate requirement in the former state and possibly minimize the impact of that state’s estate taxes.
Probate / Ancillary Probate
If you have assets owned in your individual name at death, it is likely those assets will be subject to “probate”. Probate is a court-supervised process of disposing of assets owned by an individual at his or her death that do not have a built-in way or automatic set of instructions on how the assets are to be distributed at death. Probate is the process to move those assets from the decedent to the recipient as instructed by the decedent’s will. Generally, probate is subject to public scrutiny, time-consuming and expensive.
Certain assets will avoid the probate process, because:
- The assets are not titled in an individual’s name at death (e.g., they are in the individual’s revocable trust);
- State law will dictate where the asset goes upon death (e.g., assets owned jointly with rights of survivorship pass by operation of law to the joint survivor); or,
- The decedent entered into a contract to have the assets pass at death (e.g., IRAs, 401k plans and insurance often avoid probate, because a beneficiary designation determines who are to receive those assets).
However, for those assets that are subject to probate, there is a possibility that those assets could be subject to a probate process both inside and outside of the decedent’s home state. An example of this is where an individual opened a bank account with a local bank in State X (i.e., the former state), moves to Florida and fails to move the account to Florida. In this case, to transfer the assets in the account to the decedent’s beneficiaries, the personal representative (sometimes also called the “executor”), would have to open two probates: one in State X (called an “ancillary probate”) and one in Florida (the “primary probate”).
To avoid an ancillary probate (in State X) and perhaps minimize a primary probate (in Florida), the following is recommended:
- Transfer your checking accounts, marketable security accounts and other similar accounts to a Florida financial institution. It would probably make some sense to transfer those accounts to your Revocable Trust (because this will minimize the probate process in Florida, too). Consider opening a safe deposit box at that same institution.
If you own real estate in the former state (or any other state that has a death tax), you should consider one of the following options for each:
- Transfer real estate to your revocable trust; or
- Transfer the real estate to an entity (e.g., to a limited liability company). Note, once the real estate is in an entity, the entity should be owned by your Revocable Trust (otherwise, the entity would be subject to probate if owned in your individual name).
- Before re-registering, re-naming or re-titling your assets, you should consider speaking to your tax and estate planning advisor to understand all of the legal ramifications of the recommendations.
State Estate or Death Taxes
As mentioned above, Florida does not currently impose a state estate tax. However, many states have such a tax. Moving to Florida does not necessarily mean that your estate will be free from the former state trying to impose its death tax on some of your assets. Typically, if you own real estate in a state that has a state death tax, when you die, that state may impose death taxes on your ownership of that real property.
To possibly avoid that state’s death tax you may want to consider transferring the real property into an entity (e.g., an LLC). Not all states have clearly addressed the estate taxation of the LLC. You should work closely with an attorney in your former state who is familiar with that state’s laws to be advised of strategies that may work to avoid that state’s estate tax.
Aside from the usual benefits of moving to the Sunshine State, one of the collateral benefits of changing domicile is that it prompts you to review your current estate plan, including how your assets are titled. Additionally, it gives you an opportunity to take a fresh look at your plan to see if it continues to meet with your desires and effectively transfer your wealth to your loved ones and/or charity.
The estate and trust attorneys at the Walser Law Firm serve clients in Boca Raton and surrounding South Florida areas. Contact our firm to discuss establishing Florida domicile. Contact our firm to discuss establishing Florida domicile.