Five benefits to being a Florida Resident that everyone needs to know!

Five benefits to being a Florida Resident that everyone needs to know!

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Florida is one of the most desirable retirement destinations in the world, and with good reason. It boasts a wonderful climate, miles of beautiful beaches, and many tourist attractions. But probably the greatest motivation for obtaining Florida residency is the range of tax advantages that it brings.

Here are five of the bigger ones:

1. Florida has no state income tax

Florida is one of only seven states that impose no income tax and is the only “no tax” state well suited for retirees (two of the others are Alaska and South Dakota, for example). Since Florida’s prohibition against state income tax is enshrined in the State Constitution, it would take a (highly unlikely) constitutional amendment to change it.

Not only that, but Florida’s Constitution also prohibits municipalities and counties from levying any personal income tax. Compare that to California – another popular retiree destination – which imposes a maximum tax rate of 10.3%, with an additional 1-3% income tax thrown in by many state municipalities.

2. Florida has no state death tax or estate tax

Retirement Planning The Florida Constitution bans the separate imposition of an estate or inheritance tax of the kind present in many other states. The legislation, known as the Economic Growth and Tax Relief Reconciliation Act of 2001, made significant changes to the federal estate tax, greatly increasing the federal tax exemption. While this change has been beneficial to individual taxpayers, it has been very bad for the states themselves. Until 2005, states shared in the revenue generated by the federal estate tax, receiving an amount equal to what is known as the “State Death Tax Credit.”

Some states are making up for the lost revenue by enacting their own separate estate tax – a phenomenon known as “decoupling.” Among those that have decoupled from the federal estate tax exemption are Maryland, Virginia, and the District of Columbia. In Florida, residents are protected from that threat.

3. Florida Homestead Law

Florida’s Homestead Law protects the Florida resident from losing his or her home to a creditor or any other lien holder, except for mortgages. Furthermore, this protection is found in the state Constitution, which requires a supermajority to amend. While no one plans to retire and subsequently have to file for bankruptcy, it provides great peace of mind knowing that should this occur, your home is safe.

4. Florida “Save Our Home Act”

This act provides for a homestead exemption on a Floridian’s primary residence. Once qualified, the assessed value of the property for tax purposes carries an exemption for the first $50,000 of taxable value for all taxing entities except the school district (which allows a $25,000 exemption). Also, once the property is qualified for the homestead exemption, the assessed value for tax purposes cannot rise more than 3% in any given year. Thus, over long periods of time, a property’s market value will increase more than its assessed value, resulting in equity which you do not pay tax on.

5. Tenancies by the Entirety

Tenancy by the entirety is a form of joint ownership for married couples only, and provides excellent asset protection benefits. To qualify as tenants by the entirety property in Florida, the interest in the property for the spouses must have been created at the same time, in the same instrument, giving both spouses ownership and control and an identical interest in the property, and they must have been married at the time this occurred.

However, in the case where both spouses are indebted to a creditor, there is no tenancy by entireties property. This protection exists only if a creditor has a claim against only one individual of the married couple.

Since these five tax and asset protection benefits are only available to Floridians, residency may be an attractive financial option to a lot of Americans. However, establishing residency takes more than simply owning a home in Florida — it is critical to establish the Florida home as the “primary residence” to obtain the tax advantages, and that requires living in the state at least six months of the year. It also means that the person must qualify as a non-resident of the original state.

Many states use a day-counting test to make a residency determination and also rely on the applicant’s intention to establish a permanent residence (through a fact-finding examination by the property appraiser). There are several actions an applicant can take to help establish intent:

Obtain a Florida driver’s license
Register to vote
File a Declaration of Domicile with the county Clerk of Courts
File for the Homestead Exemption
Focus one’s major affairs and relationships in Florida
If you’d like to explore the possibility of establishing Florida residency and you’re a Pinnacle client, check with your wealth manager. He or she would be happy to review your situation and make recommendations.

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