Tax and Asset Protection Benefits Afforded Florida Domiciliaries

The main reason people move to Florida is because of its warm weather. But Florida also has good tax laws and protections for your assets. If you want these benefits, you may need to take some steps to make sure you qualify. If you own property in another state or spend a lot of time there, you might have to pay taxes there too. If you’re thinking about moving to Florida, it might be a good idea to do it in 2010 because tax laws might change in the future. Some people think that Congress will keep the estate tax exemption at $3.5 million, but no one knows for sure. Some states have their own estate tax, but Florida does not. Some states are increasing their income tax rates this year, making Florida an attractive place to live for people who want to lower their taxes. Florida doesn’t have an income tax, estate tax, gift tax, or other types of taxes that other states have. For example, New York has a high estate tax rate, and some other states have multiple taxes. Because of a law change in 2010, people with incomes up to $100,000 can convert a traditional IRA to a Roth IRA with no income limit. When you convert to a Roth IRA, you have to pay federal income tax and possibly state income tax. It’s a good idea to do this in a year when you move to a state with lower income taxes, like Florida. In 2005, a law called EGTRRA phased out the state death tax credit, which Florida used to impose an estate tax. As a result, Florida no longer has an estate tax. The Florida Constitution says the state can’t impose an estate tax unless the federal government does. It’s unlikely the constitution would be changed. If a Floridian owns property in another state, their estate could be taxed there. For example, if a Floridian has $3.5 million in assets, including $1.5 million in New York property, they won’t be taxed by the federal government but will be taxed by New York. Connecticut recently matched its estate tax exemption with the federal one. The future of the federal estate tax exemption is unknown. It’s important for individuals and their advisors to be aware of the estate tax exemption in the state where they own property. There are ways to avoid estate taxes in other states, but it usually involves giving up control of the property. This could mean giving or selling the property to someone who would inherit it when the individual passes away. However, this could result in gift or state taxes, so it’s important to consider the implications. Another option is to put the property into a company or partnership to change it from tangible to intangible property for tax purposes. If someone who doesn’t live in New York owns a business or property there, it might not be subject to New York estate tax. But the business or property has to be recognized as a real business, and if it’s a single-member company, it has to be treated like a regular company for tax purposes. In Florida, there’s no state income tax, but if you live in Florida and make money in another state, you might have to pay taxes there. If you earn money from property or a business in New York, you have to pay New York income tax, even if you live in Florida. If you spend a lot of time in New York and have a place to live there, you might have to pay taxes as a New York resident. The tax people look at where you spend most of your time and where your main home is. They have guidelines to decide if you have to pay taxes in New York or not. The primary factors used to determine if someone is a New York resident for tax purposes are: 1) where they live and how they use and take care of their home 2) their job and business involvement in New York, and any investments or management of New York businesses 3) where they spend their time during the year 4) where they keep things that are important to them, like family heirlooms or special items 5) their family connections. No single factor decides it, and the auditor has to look at all of them fairly and objectively. If the primary factors don’t make it clear, then other factors are considered. The “other” factors when moving to a new place include things like where you get your mail, where your important documents and valuables are kept, where your vehicles are registered, where you’re registered to vote, and where you’re exempt from paying a parking tax. To avoid paying income tax in New York, if you’re moving to Florida, make sure to cut ties with any income-generating property in New York, spend no more than 183 days in New York each year, and act in a way that won’t make you a resident of New York according to their rules. • Florida does not have a gift tax, while Connecticut and Tennessee do have gift taxes. Connecticut’s tax applies to gifts over $3.5 million, while Tennessee’s top rate is 16 percent with a $13,000 annual exclusion.
• Florida does not have a GST tax, but some states like Illinois, Massachusetts, Nebraska, New York, and Vermont do have it. Each state has its own rules, like New York which has a $1 million exemption.
• Florida stopped imposing an intangibles tax in 2007, but some states like Kansas still have it.
• Florida has strong laws to protect people’s assets from creditors, but you may need to take certain steps to benefit from this protection. If you own a home in Florida, it can be protected from being taken away by creditors if you meet certain requirements. You have to live in the home and it has to be your permanent residence. There are limits on how much land can be protected, depending on whether the home is in a city or outside of one. If you own the home through a trust, it can still be protected. But if the city changes its zoning, the protection might change unless you agree to it. Homestead protection in Florida has some limitations. If you owe taxes or money for work done on your property, the court can force a sale to pay these debts. The Bankruptcy Code also limits homestead exemptions if you acquire property within three years and four months of filing for bankruptcy. However, there are still ways to protect certain assets from creditors, such as life insurance proceeds, cash surrender value of life insurance policies, retirement benefits, medical savings accounts, and college funds. Property owned by both spouses, called tenants by the entirety, is also protected from individual creditors, but not the IRS. So, it’s important to understand the limits of homestead protection in Florida. Moving to Florida has many benefits, including favorable tax laws and asset protection. However, it’s important to ensure that you don’t end up paying taxes in another state and that your home qualifies for homestead protection. With potential changes to tax laws in the future, it’s a good idea to consider making the move to Florida in 2010. This is a submission from the Tax Section about two lawyers, David Pratt and Lisa Stern, who specialize in estate and gift taxation. They are experts in their field and are dedicated to serving the public and improving the administration of justice.

Source: https://www.floridabar.org/the-florida-bar-journal/tax-and-asset-protection-benefits-afforded-florida-domiciliaries/