New Jersey Estate Planning & Elder Law Blog : New Jersey Estate Planning Lawyer & Attorney : Deirdre Wheatley-Liss : Fein Such Kahn & Shepard Law Firm : Elder Law, Tax Planning

Truth - New Jersey is the most expensive state to die in.  Consequence - A great estate planning technique is to not be a New Jersey resident when you die.  

Many people have second homes in Florida and say "well, I'll just become a Florida resident." While this is a great idea, it is not always so simple to carry out.  Guest blogger Steven A. Loeb, Esq. points out below that there are threshold requirements to becoming a Florida resident.  If you don't carefully meet the Florida requirements, and you continue to maintain a presence here in New Jersey (ie: you still have a home here) then you run the risk of New Jersey claiming you are still a resident of the lovely garden state, and thus subject to its tax scheme upon death.  New Jersey has an state estate tax with a $675,000 threshold, Florida has no estate tax - so getting Florida residency right has real bottom dollar consequences.

In today's legal environment, the question of an individual's state of residency can be quite important in determining tax implications, both while the individual is alive and upon their death. Each state where an individual resided and owned property upon his/her date of death will make its own determination regarding the decedent's domicile (i.e. a legal term having a meaning of residing in that state with an intent to remain indefinitely).

Often, an individual wishes to relocate to Florida in order to take advantage of many of the tax favorable statutes in that state. However, many times problems arise when the relocated individual maintains significant contacts with the former state, which creates doubts as to whether residency was changed to Florida.

There are several steps you can take to clarify that you have in fact become a Florida resident in case a tax return is audited by your former state claiming that the state of residency was not changed and there is an attempt to subject the entire estate to tax in the former state.

Steps in Becoming a Florida Resident

1) File a Declaration of Domicile in the Town Clerk's office in the county of residence;
2) Register to vote in Florida and actually take the time to vote in elections;
3) Be physically present in the state of Florida on average for 8 months out of each year (at least 6 months and 1 day);
4) Change your primary care physician and all additional physicians to the state of Florida;
5) Have all prescriptions transferred to a pharmacy in the state of Florida;
6) Register your car in Florida and obtain a Florida driver's license. and notify your insurance carrier that you are now a Florida resident;
7) File Income Tax Returns as a Florida resident;
8) Purchase or rent a house or condominium in Florida and actually move into that location;
9) Transfer primary bank accounts to a Florida bank: and
10) Draft a Last Will and Testament, Power of Attorney. and Living Will/Health Care Directive stating that you are in fact a Florida resident.

These are just some of the necessary action items to consider when relocating to Florida. In order for the taxing authority of your state to not challenge your domicile/residence either during your lifetime and upon your death, it is important to consider the above information when relocating, as well as to get professional advise about your personal circumstances.

Deirdre's note - A great blog about Florida Law issues can be found at South Florida Estate Planning Law authored by my colleague David Shulman.

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Why did LeBron James cross to the Miami Heat? Because his tax adviser said so of course! At least, that is what is posited in a very interesting article "Play The State Income Tax Strategies Game Like LeBron James" by Trace Mayer at Citizen Economists.

As a free agent, LeBron had options. He could go wherever he thought he could win a title, get the most money in endorsements, where he could enjoy the best Cuban food and beach lifestyle, and maybe all three. After being courted by half a dozen teams, he had some really nice offers and some potentially lucrative deals. The biggest players were Cleveland, the New Jersey Nets, New York Knicks, maybe even the Bulls or the Clippers and of course Miami. LeBron finally picked Miami. Miami could arguably offer a lot, but I wouldn’t doubt that his state income tax attorney whispered a few sweet words into his ear about income tax strategies, like “$2-5 million a year,” that may have influenced his Decision."

The math really makes a difference when you are earning $44 million a year.  What was LeBron looking at with the other teams wooing him:

• Cleveland Cavaliers (Ohio) - state income tax bill - $2.6 million
• Chicago Bulls (Illinois) -- state income tax bill -- $1.65 million
• New York Knicks (New York) -- state income tax bill -- $3 million
• LA Clippers (California) --state income tax bill  -- $4.6 million
• New Jersey Nets (New Jersey) -- the winner!, with a state income tax bill of over $4.8 million

And the state income tax bill for the Miami Heat  (Florida) - zero, nothing, nada.  Hmmm, so maybe there is something to the concept of people don't want to come to  New Jersey because of the taxes.

This does illustrate an interesting tax planning concept regarding gifting. Many times we  will recommend to clients that they create a trust with situs in a state other than New Jersey. The trust's income would then be taxed by the state income tax rates, or not taxed all, in a state like Florida where there's no income tax.  This is done by having a trustee who is resident in the state that has no income tax.

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In response to my post NJ Medicaid Key Figures - Starting July 2009 I received 2 questions if it was "better" to move to Florida for Medicaid purposes.  Not being a Florida practitioner, I cannot really compare Medicaid rules in the two states.  Note the Medicaid is federal law - so while it is implemented on a State by State level, the overarching rules are the same for everybody.  What I can do is give you the Florida Key Medicaid figures, courtesy of The Law Offices of Sean W. Scott, Esq.

 2009 Florida Medicaid Asset/Income Numbers.  

• Gross income for the applicant - Less than $2,022* per month
• Gross income for the spouse - Unlimited 

• Spousal income diversion - min. $1,750 max. $2,739
• Spousal excess shelter standard - $525 

• Assets** allowed for the applicant - $2,000
• Assets** allowed for a low income (less than $808 per mo.) $5,000
• Assets allowed for the well spouse - $109,560
• Transfer penalty divisor - 5,000

*If income is higher an income trust will be required.

**Assets must below the limit at least one day during each month the application is pending for approval.

If you need Florida specific legal counsel, search for Florida Elder Law attorneys through the Attorney Locator of the National Academy of Elder Law Attorneys.

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I love being ahead of a news story.  

I blogged back in August: Moving From Florida?? A Reverse Trend that May Prove Expensive for Residents -  noting that Florida is seeing its first population decline since demilitarization after World War II and that its tax revenue system may be to blame.  The result may be that Florida may be losing its status as the go-to residence for New Jerseyans looking to get out from under New Jerseys tax system particularly its low $675,000 state tax exemption.

 That post of course raises the question of where else is a person to go?  I noted in "Southern States a Tax Lure for New Jersey Residents?" that other states are going out of their way to try to attract retirees as new residents through the structuring their state tax system to give retirees a financial incentive to transplant to sunnier climates.

Now it seems that TIME magazine has caught up to the story in their feature "Florida Exodus: Rising Taxes Drive Out Residents".  TIME notes:

There are many things public officials probably shouldn't do during a severe recession, but no one seems to have told the leaders in Floridaabout them. One thing, for instance, would be giving a dozen top aides hefty raises while urging a rise in property taxes, as the mayor of Miami-Dade County recently did. Or jacking up already exorbitant hurricane-insurance premiums, as Florida's government-run property insurer just did. Or sending an army of highly paid lobbyists to push for a steep hike in electricity rates, as South Florida's public utility is doing.

For states, attracting new residents is good for business - more people equals more revenue. If Florida can't manage its budget in a way that will continue to attract residents, perhaps other states will start offering "deals" to retirees so that dollars will go further in your silver years. perhaps say "CA$H for Change of Address" program is in the making.

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It seems that my in box is full of information on better places to live than New Jersey from a cost perspective (personally, I love the shore and NYC and Philly and skiing all being within 2 hours drive). I got a very thoughtful piece from my friends at RegentAtlantic Capital entitled "When You've Paid New Jersey Enough".  In the article, Bill T. Knox, "reviews the key factors that should determine whether someone who has lived in NJ and then establishes a home outside the state will be successful in escaping the state’s income and death taxes."  

Bill looks at New Jersey domicile and residency from the income tax and estate and inheritance tax perspective.  Domicile is a very tricky question - it is where you intend to be without intending to move.  So if you intend to be an Florida resident, but keep your New Jersey home and all your bills coming here, did you really leave New Jersey domicile?  

And why does domicile matter?  Well, New Jersey income tax applies to all income earned by New Jersey "residents", and the New Jersey Estate tax is levied against a New Jersey resident who dies.  Clearly, if there is a question, New Jersey would like to claim that you live here and you should pay here.  So, if your domicile and residency are supposed to be elsewhere, you need to make sure that you have dotted all "i's" and crossed all "t's" to make that happen.

Quick story - A client of mine died January 1, 2009.  She had changed her residency and domicile to North Carolina in the year before her death.  Her estate is approximately $3.5 million.  Had she dies a New Jersey resident she would have owed New Jersey approximately $230,000.  As a North Carolina resident, her estate tax bill is $0.00.  How is that for some effective Estate Planning???

In "When You've Paid New Jersey Enough" Bill provides a quick checklist of key domicile and residence issues.

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 It is no secret that New Jersey is the most expensive state to die in. New Jersey has the lowest estate tax exemption threshold of the country at a mere $675,000. In contrast, Florida has no state-level estate tax, and the creation of an estate tax is specifically banned by its Constitution. in addition, Florida's state revenues are generated primarily from property tax and sales tax. Due to all of these things, Florida is a less expensive State to live and die in New Jersey.  For years we've been recommending to clients who have homes in both New Jersey and Florida to consider changing their residency of Florida.

Bloomberg.com in Florida’s First Population Decline Since 1946 Squeezes Budget reports that Florida just experienced it's first population decline since 1946 -- that's over 50 years of growth -- and the last decline was apparently as a result of military personnel leaving Florida after World War II.  And the predictions are that this trend will continue:

 "Rising property taxes, increased homeowner insurance costs since the 2004-2005 hurricane season and competition for retirees from other states such as Georgia will damp population growth in coming years".

Additionally, "Sales-tax collections, which brought in 27 percent of revenue in 2008-2009 in a state without a personal-income tax, fell 10 percent last year."

From an estate planning perspective then, this raises the question of whether or not Florida will continue to be the "go to" state when recommending residency change from New Jersey as a way to reduce estate taxes.  Florida may need to change its revenue generation model, by raising sales tax, raising property tax, adding income tax, bringing back the intangibles tax, or some other manner that makes it more expensive to be a Florida resident.

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