Financial Planning & Considerations When Moving to Florida

If you’re considering a move to Florida in order to maximize your assets and plan for your financial succession, you’ll want to start planning early to get the full benefit.

In this webinar, we’ll cover the overall financial logistics of the move as well as pieces that should be addressed well in advance including:

  • Retirement planning
  • Estate planning
  • Income allocation
  • Proof of residency/ Domicile

Below is a transcription of the webinar.

Amanda: We’d like to welcome everyone to today’s webinar, Financial Planning Considerations When Moving to Florida. So, a little bit about today’s speakers. With us today, we have Connie Eckerle from Smolin. Connie is a licensed certified public accountant with Smolin. We also have Henry Rinder with us today. Henry also is a licensed certified public accountant. And then we have Geoffrey Weinstein. Geoffrey is an attorney and special counsel at Cole Schotz in the tax, trust and estate department. He counsels those with business and personal interests in the greater New York City metropolitan area and South Florida. And with that, I’ll pass things along to Henry, who is today’s moderator.

Henry Rinder: Thank you, Amanda. I really appreciate having Connie and Geoff on our panel today. Geoff is a pretty knowledgeable attorney in the area of multi tax interstate kind of issues. And Connie is one of our partners in our South Florida office, and she constantly addresses clients’ needs in this space. So we have a couple of very knowledgeable folks here with us. Amanda, let’s move to the agenda, please. Thank you.

So we’re going to basically discuss the highlights of the issues involving moving your residency to Florida. So we will talk about proof of residency, what are the tax implications that you would face. We’ll address retirement planning, like what happens to your pensions and 401(k) distributions and so on. We’ll talk about what are the common pitfalls in moving your residency to Florida. And finally, we’ll wrap it up with estate planning tips to consider as part of the consideration in the move from either New Jersey or New York or Connecticut to Florida. Having said that, Amanda, could we go to the next slide? I’ll turn it over to Connie, who will cover the proof of residency area. Connie?

Connie Eckerle: Thank you, Henry. So first let’s talk about domicile. Domicile is defined as the place that someone intends to be their permanent home. Residence itself is the physical presence in a state. But with regard to domicile, it not only requires your physical presence in the state, but it also requires the intent to make that state your fixed or permanent home. You actually have an intent to leave the land or leave the state that you are leaving. In many cases, it’s showing that you’re looking for a lifestyle change in a lot of cases. A person can really only have one domicile. For residency purposes or domiciled purposes, there’s five very important factors. They call them the five primary factors.

The first one is your home. Where is your home? And what is the size and the value of your home in New York? I’m just going to say New York, but obviously, New York and New Jersey can be used interchangeably. And what is the size of that New York home, and how does it compare to your home in Florida? Still owning the large home, a family home in New York, and renting a small townhouse in Florida, that may not support your intent to actually leave New York. They also consider the nature of use of these residences. How are you using that home? Are you treating it more like a vacation home, like a beach house, or is it really the majority of the time you’re spending there and really treating it like your home?

The second factor is your business dealings, right? Your active business involvement. What agents like to see here is maybe you’re transitioning to retirement. And when that happens, they want to start seeing you divest yourself from the business that you might have in New York. So that helps to support leaving the state of New York and your business there. The third primary factor is the time spent. Where is your time spent? While spending 183 days or fewer in New York prevents you from paying income tax as a statutory resident, the amount of time you spend in Florida is also very important. Some people think it’s just as long as you’re out of the state of New York for 183 days, that’s good. Not necessarily. You really have to spend more time in Florida. So if you spend, for example, five months in New York, three months in Florida, and the remaining four months traveling or maybe even at a third home somewhere, it could be argued that you really never left New York, and that Florida really is acting more like a vacation home. So you really need to show that you live in Florida most of the time.

The fourth factor is items that are near and dear. And this is very important because where are your items of sentimental value maintained? This is a very heavily weighted factor, and they want to see that you moved your photo albums down to Florida and your family heirlooms, and maybe your works of art. They really do look at these near and dear items. Lastly, the fifth factor is your family connections. And this pretty much only really applies to when you have minor children, but where are your minor children enrolled in school? Proving these five factors, it’s facts and circumstances, and the burden of proof is on you, the taxpayer, to prove that. So keep these five factors in mind when establishing your domicile.

There are quite a few secondary factors that come into play, and although not deciding factors but they are still very important, they contribute to your intent to domicile. And some of these include in what state do you hold your driver’s license, where are you registered to vote, and are you actually voting there? And where’s your Homestead exemption filed? Things like location of your safe deposit box with your important family records. Also, your active involvement in organizations and country clubs. And lastly, your will and your trust and some of your legal documents, you want to make sure when they cite the place of domicile, you want to make sure that you get that legally changed in your documents to Florida.

I’m going to jump into statutory residency. There are two components of that. Residency is your physical presence, right? Your day count in the state. And you must also have a primary or a permanent place of abode. So those are the two components. First, you must pass your 183 day test. Well, even if you’re successful in changing your domicile to Florida, if you return to New York for more than 183 days during a calendar year and maintain a home, you’ll actually be classified as a statutory resident under the state’s tax law. So keeping track of the 183 days is critical. A minute in New York is a day in New York. And the only exceptions, really, that the state allows is really travel and medical. So let’s say, for example, you’re traveling through New York to get to an airport, or you have a quick layover in New York and it’s heading somewhere else. That will not count as a day in New York.

And the second one is medical. So let’s say you’re a Florida resident, and you go up to New York to visit the grandchildren and you get physically hurt and you are in the hospital. The time that you spend in the hospital will not count towards your 183 days. So recordkeeping is very important. It’s recommended that you keep a log. State auditors often will check cell phone records, credit card statements, E-ZPass activity. So you have to be able to prove where you were on certain days.

Now, let’s talk a little bit of what you need to do when you get to Florida. One of the most important things is to go to your clerk of court in the county that you reside and record a Florida declaration of domicile in their official records done right at the courthouse. And then if you do that before December 31st, then you have up until March 1st to file for a Homestead exemption on that Florida property. And again, another critical is to make sure that you execute estate planning documents that reflect Florida as your place of residence. And lastly, the secondary factors that we talked about before, you want to consider complying with those as well.

Henry Rinder: Can we move to the next slide, please? I think that’s also something that, Connie, you’re going to cover for us?

Connie Eckerle: Yes, I will. Thank you. So for tax implications, the Tax Cuts and Jobs Act that was passed in December of 2017 limited what the state and local tax deduction. The maximum deduction is $10,000. And that includes property tax. And in a state that has state income tax, it includes the state income tax. And in Florida, it’s sales tax. So this limitation significantly reduced the deduction, therefore making it not as advantageous to pay all those taxes. When you consider property taxes in two states, income tax in New Jersey or New York, clearly well above $10,000. The top rates for the federal tax bracket is 37%. With Florida not having any state income tax; New Jersey having state tax of about 9%; in New York, the state, about 7%; in New York City another 4%; losing these deductions has a large impact on your tax liability. So the SALT deduction limitation is a big driving factor for people to move to a state without income tax.

If you’re now a Florida resident, but it’s partial year, in the year that you moved to Florida, you will have a part year income tax return reflecting the income that you earned in New York or New Jersey for that time period that you were in that state. So you will have a part year tax return for that state. If you’re now a Florida resident and you have income that may be sourced in New York or New Jersey, you have to file a nonresident return and allocate that income accordingly and pay tax to that state on the income that is sourced in that state. In addition, if you’re a Florida resident and you have wages in New York, you’re required to allocate those wages to New York based on the time that you’re working in that respective state and deriving income from those services.

And then the last, just to touch lightly upon the considerations for sale of principal residence, if you’re going to sell your New York or New Jersey home, bear in mind that the IRS allows you to have an exemption of $250,000 per person, $500,000 for a married couple, but to get that exclusion you have to sell that home while that home was your primary residence, and you lived in it for two of the last five years. So timing of selling that home needs to be considered in order to get that exclusion.

Henry Rinder: Next slide, please. So I think this is the section that describes retirement planning. For this particular topic, we’re going to turn it over to Geoff. Geoff?

Geoffrey Weinstein: Yeah. Thanks Henry and Connie, you did a very nice job running through. I know it’s difficult with 15 minutes to get through all of this. Even before I get to the retirement income, I just want to just touch on a couple points for just a few minutes on some of the things to also consider. I do a lot of residency audits with both New Jersey, but more so with New York. The issue is always with owning to residence in the state. And I think the primary thing that, at least, I know when New York audits they look at, is whether you’ve really abandoned the former domicile. That becomes a critical issue. And certainly although they look at all of those five primary factors, in my experience, that’s the most significant one, coupled with the amount of time that you’re spending.

The other thing, it’s a very [inaudible 00:15:28] analysis. I mean, some of the things they look at are, for example, where your physicians are located. It becomes difficult when you say,” Hey, my New York residence is, or the co-op or condo is a vacation home,” when all your doctors are in New York. An auditor’s going to say, “Well, when you normally go on vacation, do you make scheduled visits to the doctor?” So things like that you really have to keep in mind, making sure your mail and everything is all addressed to Florida. You really have to be all in. One point I also want to make on day count, a lot of people have the misconception, well, how are they going to prove I’m here or there? The burden is entirely on the taxpayer, and any day that the taxpayer cannot prove their presence is out of New York or New Jersey, will be deemed to be in that state.

And there are a lot of ways that you can track your movement. They will do it for you in some instances by subpoenaing your phone records. You can also get apps, make certain transactions. Because when it comes down to it, you really have to have complete, fastidious records of your whereabouts, assuming you can get over domicile.

So getting now to retirement income, deferred compensation, this is kind of what I would call the third phase of an audit, if you will. So first they’ll look at domicile, which we discussed. Then they’ll look at, if you’ve overcome the domicile and you can show you’re no longer domiciled in the state, then they’ll look at statutory residency. Assuming you get over that, then what they’re looking at … when I say ‘they,’ I mean either New York or New Jersey Department of Taxation or Division of Taxation, they look at, well, okay, you’re a nonresident, and what or how is your income sourced as a nonresident?

So when you look at the retirement income or deferred compensation, you look at pension and annuity income. Now, I give New Jersey credit, New Jersey has legislated and has made generally an exclusion, although it’s a cliff, in 2020, up to $100,000 of retirement income. So if you’re not in a situation where you’re going to be receiving income over $100,000, you may not need to move to Florida because your income, if it’s just retirement income under that threshold, is not going to be taxed. However, for those clients or professionals that have clients that have substantial pension annuity, IRA income, this becomes a big issue. And under federal law that I have listed in the slide, P.L. 109-264, that income cannot be taxed if you’re no longer a New Jersey or New York resident, so it’s kind of a safe harbor to exclude that income. That can be a major reason for moving out of New York or New Jersey.

Now, when you look at the other three items: bonus, severance, stock options; basically, what’s presented on the screen is how New York under its rules will tax income that’s been earned or vested in the state of where you were a resident or where the employer is located, and then how it’s taxed once you’re a nonresident. So I think it’s just important to keep in mind that for example, New York, if you have a bonus that’s earned in one year and paid in another, may still be allocable to the … say, for example, for New York, even if it’s paid in the year that you’re a nonresident. Same with severance, stock options. There’s very specific rules for New York.

Now, there’s also something called the accrual rule which New York uses, which basically treats you from a cash basis taxpayer to an accrual method taxpayer for, again, income that may have been earned while you were a resident. The takeaway for this is there are things you can do. And if you are in a position where you have some negotiation or leverage to structure deferred compensation when you’re going out the door, you might be able to structure it so that it’s for future performance instead of past performance, and thus avoid having it being accrued or determined as sourced in New York or New Jersey. We can go to the next slide.

I think very interesting issues have come up with telecommuting now as a result of the pandemic and COVID, that are very unique and is really bringing the issue of telecommuting right to the forefront. Henry and I were discussing that there’s even some possible legislation to deal with it. But the basic idea, as Connie stated, that generally when you’re a nonresident, your wages are taxed based on where the services are performed. Now, there’s an exception to this, and that is where you talk about the convenience of the employer test. So for example, even if you’re a Florida resident and you work for a New York employer, and let’s put the pandemic and all that aside because that raises issues that really haven’t been squarely addressed by the tax authorities, but prior to that, even if you were a resident of Florida, if you’re working for a New York company, you’re going to be subject to paying 100% of your income to New York regardless of where you’re doing the work.

So even if you’re working from home, you’re going to be subject to that. And that’s under a very lengthy and well-settled history of cases defining what’s called the convenience and employer rules. And those are enacted in Delaware, Nebraska, New York, Pennsylvania, Connecticut for purposes of a residency credit for 2019. New Jersey is a little bit unclear, but most practitioners believe that they’re also following the convenience of the employer rule. So again, that’s important, particularly where you have the state from which you’re working from, if it doesn’t have an income tax. Because for example, if you’re a New Jersey resident and you’re working for a New York employer, assuming you don’t have a permanent place of abode in New York and you’re not subject to New York City tax, it’s really not going to make a huge difference because your New York employer’s withholding the income tax, you file your New Jersey resident return, and you take a credit.

So it’s really New York and New Jersey sort of battling it out behind the scenes as who’s entitled to that money. But with regard to if you’re working out of Texas, Florida, or other states that don’t have an income tax, it makes a huge difference because you don’t get a credit on the return. So you want to be aware of that. Now, there has been legislation, or I should say not legislation but in the form of PSB, that gives nonresidents the ability to allocate out of New York if certain conditions are met. There’s a PSB, and I can send that to you. We don’t have a lot of time, so I just want to get to the next slide on that. And by the way, if you want any information regarding any of these topics, you can email me at gweinstein, W-E-I-N-S-T-E-I-N @coleschotz.com, and I’m happy to follow up.

The last thing that I just want to mention here is typically when you get estate planning documents and they’re done in Florida, for example, I worked out of our Boca office, typically use rev trust. Okay? What I did want to just talk about very briefly is what about residents of New Jersey or New York who may later be become nonresidents, but right now for either practical reasons or other reasons they’re not able to do it, what can you do? Are there trusts that can be set up to minimize state income tax? And there are significant steps you can take that will save money or avoid or minimize state taxes by setting up certain trusts. The trust you don’t want to set up for this are what are called grantor trusts.

If you’re in a position where you’re able to set up what is called a non-grantor trust, typically because of Nevada state laws we call it a Nevada incomplete gift non-grantor trust, or a NING, that can be a tremendous vehicle to reduce state income taxes, particularly for New Jersey residents rather than New York. And the reason for that is New York has sort of figured out this technique and has legislated against it. But for New Jersey residents, if you’re able to set up a trust and your client does not need distributions of that money in the current year, it’s just a great technique to have what’s called an incomplete gift, which allows the trust to be funded by the seller without triggering a gift tax. It also provides asset protection. You can get a step-up in basis. So that’s, like I said, it’s a great tool. The other, in New York, you can do what’s called a completed gift trust, which is another way to minimize tax, but instead of an incomplete gift it’s a completed gift.

I wanted to leave a few minutes for Henry to either ask questions. I didn’t even mean to go this long. But Henry, go ahead, if you want to add any further commentary.

Henry Rinder: Thank you, Geoff. Great presentation. Usually, we turn to the next slide, which is probably the questions from the audience slide. And we turn to Amanda to see if we have any questions coming from the participants. Amanda?

Amanda: Yes. So one of the questions that we had, was someone was asking how far in advance, realistically, they should start planning these pieces, knowing that there’s certain requirements for how many days and how far they should be planning and moving everything.

Henry Rinder: Geoff, would you like to take a stab at this question? How far in advance they should …

Geoffrey Weinstein: Yeah. As soon as you know, you should start taking steps. And one of the reasons why is, particularly if you want to take advantage of the Florida Homestead, you need to file that for the current year by March 1st, which is a helpful tool. But you know what? People have their own schedules. You can do it halfway through the year. If you can do it way out, even better. What we don’t like to see is if a major transaction is closing and you do it during the same tax year. That’s usually a recipe for disaster.

Henry Rinder: I would like to add something to it, actually. Cole Schotz, Geoff’s law firm, has published a very informative handout on this very topic. And it has loads of tips and recommendations on how best to address the move from one state to another. So I’m sure, Geoff, if somebody wants to email you, you can send them the PDF version of it. It’s quite informative. And frankly, to Geoff’s point, obviously, there’s certain transactions that can be planned ahead where you can potentially save either New York or New Jersey taxes, but that requires advanced planning. Last minute is not a good idea, under no circumstances. And to that end, you should be talking to somebody like Geoff or us in terms of planning ahead. Amanda, any other questions?

 

Amanda: Yeah. One of the questions was regarding the trust. Just wondering if you could provide a little bit more detail about what the options were. I know we’re short on time, we’re trying to fit in a lot, but just what the recommendations were for those.

Geoffrey Weinstein: Sure. We do it all the time. But like I said, the preferred method in New Jersey is a Nevada incomplete gift tax trust. It really requires a meeting to really understand the type of transaction that you’re contemplating. Where it works best is the sale of stock or in intangible interests, which is important to know as opposed to an asset sale. So that’s another reason, to Henry’s point, you really want to plan ahead because it could affect how you structure a transaction or the type of assets that these trusts hold.

Henry Rinder: We are at 3:30 mark, so let’s take one more question. And then any other questions that remain unanswered, we’ll circulate to the panelists and we will try to get back to you directly. Amanda?

Amanda: Sure. So one of the questions was if a married couple files jointly for federal taxes, can one person claim that Florida residency?

Henry Rinder: So the question is if you have a situation where … I’m trying to kind of dissect the question, you have a joint return for federal purposes, one person is a solid resident of Florida, another person is not and perhaps as a resident of New York or a resident of New Jersey, how do you deal with it? So Connie, why don’t you take a stab at it, and maybe Geoff can supplement your answer if necessary?

Connie Eckerle: Well, you can. I mean, you can do a married filing separate, I’m assuming. Well, or married filing joint, one as a Florida resident and one as a New York. You have to look at the states. We’d have to specifically look at the states, but I know it happens. It happens frequently.

Henry Rinder: And in terms of the statutory residency versus part-time residency, if you have somebody that establishes a residency during the year, for example, I think you mentioned something about it earlier in the presentation, Connie, where you would have a resident return in New York or New Jersey in the beginning of the year, and then if necessary nonresident return for the remainder of the year, even if 183 days is exceeded, providing that there’s some other measurements of residency that happened the following year. Is that correct?

Connie Eckerle: That’s correct. So in the year that you moved to Florida, you can almost guarantee that … I mean, you will have a part year return for the time that you spent. That is a transition year, whether it’s 183 days or not, because you’ve now left that state and you will have a part year in the current year. And then the following year, then your 183 days really comes into play.

Henry Rinder: Correct. Geoff, would you like to supplement any of that? Because obviously, that first year creates some opportunities, but I’ll let you comment on it if you wish.

Geoffrey Weinstein: Sure. It’s very common. I agree with what Connie said. I mean, most people aren’t able to or don’t establish residency on the first day of the year, 1/1, so you do end up filing part year returns. Sometimes, by the way, even if it doesn’t change the income tax consequences to that, the optics are sometimes good. So I may sometimes advise clients, even if they’re going to end up paying 100% of their income to New York or New Jersey, to file as a nonresident if they change their domicile, say in December, so at least they sort of put their foot in the door, and the face of the return shows the Florida address and all of that.

So in the next year, if they’re audited, you can show, hey, this was a situation where they had contemplated change of domicile in the last year, even if they ended up paying 100% of state tax. So sometimes you do it for that reason as well.

Henry Rinder: Well, thank you, Geoff. And thank you, Connie. Wonderful presentation. Really appreciate your narrative and your input. I wanted to thank the participants for joining us today. As I mentioned before, your questions that were not considered by the panel, we will circulate them to the panelists and we’ll get back to you with an answer to your questions. Thank you, Amanda, for hosting it, and have a good day everyone.