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Florida Has Favorable Tax Laws

The warm winters and warm waters are sound reasons to visit Florida, but its favorable tax laws also make the Sunshine State a good place to live—and die. Florida boasts no income tax, no inheritance tax, no gift tax, a $25,000 exemption on property taxes and a favorable estate tax compared to many other states. It also has the Homestead Protection Act, which shields residents and their assets from creditors.

“All these factors put together make Florida an attractive package,” says Robert Seaberg, managing director of wealth planning at Smith Barney. While Florida is not for everyone, he says people are more likely than ever to make the state their permanent residence when they have sizable estates and can save money on estate taxes.

The estate tax game changed in 2001 with a new federal law that is set to phase out the estate or death tax by the year 2010. While Florida set legislation that prohibits changes that would allow the state to exceed the dollar-for-dollar federal credit, other states were not so generous. New Jersey, for example, chose to decouple from the new federal law and impose a stand-alone death tax. For someone with an estate of $50 million, dying in New Jersey in 2005 versus dying in Florida could mean paying four times the net amount of taxes—approximately $7.45 million in New Jersey and $1.86 million in Florida.

For those who already have established a second home in Florida, the decision to move is easier. “Society is more mobile, so clients are responding to the federal law more than they would have,” Seaberg says. But the savings are not always enough to persuade retirees to pack up and move, especially if they have deep emotional ties to family and friends they would be leaving behind. “When you add in that, when you are alive, you don’t have to pay state income tax and you are better covered if you are sued, then it becomes more attractive,” says Seaberg. “People move to Florida, build and purchase big estate homes here because of the Homestead Protection Act.”

For those who decide to make the move to the land of sun and sand, the first step after unpacking should be to establish residency. This involves registering to vote, getting a driver’s license, naming Florida as your residence on your income tax form and filing the form with the Internal Revenue Service division for that area, and filing an affidavit of domicile with the clerk of the circuit court.

Severing real estate ties elsewhere is also recommended. “When Howard Hughes died, several different states claimed him as a resident, all wanting a piece of the pie,” says Seaberg. If you plan carefully, you can ensure that you and your heirs get generous slices.

by: Kim Fredericks