By Jennifer L. Fulton, Esquire
There’s no place like home . . . and from an estate and tax planning perspective, there’s no place to call home like Florida. In addition to lots of sunshine, Florida has no state income, fiduciary, estate or inheritance tax, and offers strong homestead creditor protection, making it a great place to retire.
If you are moving from New York to Florida, you have both income tax and estate tax incentives to establish your domicile in Florida, and to relinquish your New York domicile. A non-resident of New York is income taxed by New York only on New York source income (as opposed to all income regardless of source).
• The New York estate of a decedent domiciled in New York includes all their real, tangible and intangible property, except for that tangible and real property having a situs outside of New York. The New York decedent receives a New York State estate tax exemption ($6,580,000 for decedents dying in 2023). The exemption begins to phase out at values over the exemption amount, and if an estate is valued at more than 5% over the full exemption amount, the estate completely loses the exemption and the full value of the estate’s assets with be subject to New York estate tax. In addition, for those passing away in 2022, the portion of the estate in excess of the NYS estate tax exemption, up to approximately $6.71 million, will be taxed at rates of over 100%–and in some cases over 250%–of the excess amount above the exemption.
• If the decedent is deemed a non-resident of New York, however, all intangible property, as well as tangible and real property having a situs outside of New York passes free of New York’s state estate tax, and only that real and tangible property which is located in New York is subject to New York estate tax.
But if you are moving your home from New York to Florida, you must take proactive steps to establish yourself as a resident of Florida AND to relinquish your domicile in New York. The burden is on the taxpayer to prove to New York that they have relinquished their domicile in New York. Some people meet the criteria required in Florida to be a resident for income and estate tax purposes—living here with the present intent to indefinitely remain—but fail to satisfy New York State that they have transferred their domicile to Florida. Showing you are now a full-time resident of Florida is not enough. New York has three tests a former resident must pass, some of which are multiple-part, before New York is satisfied that you have abandoned your New York domicile:
1 – Statutory Residency. For income tax purposes, if you maintain a permanent place of abode in New York State, and spend a total of more than 183 days per tax year in the state (including any portion of a day, whether or not you spend the night there), you are a statutory resident of New York. Even if you are not deemed a statutory resident for income tax purposes, income derived from a New York source will be taxed as New York income. Estate taxes apply to the estate of an “individual who at his or her death was a resident of New York State”1, but, unlike the statutory residency definition in the income tax rules, there is no clear estate tax definition of “resident.” Case law differentiates between the income tax definition of residency and the intent of the decedent in determining domicile for estate tax purposes.2 Practically speaking, courts use the remaining factors to determine a person’s domicile for estate tax purposes.
2 – Domicile. The domicile test places the burden on the taxpayer to show that they have an intent to no longer benefit from a domiciliary relationship with the State of New York. This test is divided into five primary factors, and if it cannot be determined by the primary factors, can be subject to the various “other factors.” The primary factors are qualitative, not quantitative, so simply having more than half of the factors in your favor does not necessarily ensure a transfer of domicile from New York’s perspective.
a – Home. Home is not merely your residence, but can be the community you view as home, in which you and your immediate family members have strong and enduring ties. This issue is cleaner if you no longer have a home in New York. If you maintain two homes, it is important to move your family heirlooms and treasured possessions out of New York. Also considered are the relative size, value, nature and use of the residence.
b – Active Business Involvement. Continued employment, or active participation in sole proprietorships, partnerships or LLCs, or the substantial investment in and management of New York corporations or LLCs can establish domicile in New York. Active participation in the business decisions or day-to-day operations of these entities can weigh heavily on deciding an individual’s business involvement. Diminished involvement with age may be weighed against the individual’s involvement in business ventures outside of New York. Income earned from New York-related businesses will be subject to New York income tax, whether or not a taxpayer is deemed a resident. Real property owned by a resident or non-resident taxpayer will be subject to a New York estate tax. Real property owned by some closely held businesses for business purposes will be considered intangible assets not subject to New York estate taxes, depending on the structure and tax election of the business. It may pay to review your closely held business structure with your tax and legal professionals as you prepare to become a Florida resident.
c – Time Spent in Each Location. This is not the strict 183-day test used for income tax purposes. Spending significantly more time in your new domicile than you did before you changed domicile (and not just a few more than 183 days) is the most helpful. Your pattern of travel and daily living should show that your new location is your domicile. Keep a log of where you spend your time during the year, and if possible, leave and return from vacations to your Florida residence. Partial days count as days, and they can tell based on your cell phone records, whether you were in New York for any portion of the day.
d – The “Teddy Bear” or “Near and Dear” Factor. The location of items of sentimental value, those which an individual “holds near and dear” to their heart, such as artwork, family heirlooms, and collections, is a factor in determining domicile. Open a safe deposit box in your new state, and if your insurance policy states that the items are located in New York, be sure to update your policy information. Keep receipts or other proof of moving these items.
e – Family Connections. This primarily looks at the spouse and minor children, to see if they are living in, working in, or going to school in New York. A short seasonal visit to the old neighborhood should not trigger this factor.
3 – Other Factors. If the five primary factors do not lead the conclusion that the decedent has changed domicile, the Department of Taxation and Finance will consider “other factors”. Other factors include things like the citation of your residence in legal documents, voter registration and the exercise of the vote, registration of your car, plane, boat or other craft, your operator’s license, your passport, the address at which bills and financial statements are received, the location of your banks, financial planners, doctors and other professional partners, the location of your safe deposit box, memberships in clubs requiring residency, a comparative analysis of phone service or other utilities in both locations, the possession of parking permits from New York or elsewhere. It is the taxpayer’s burden to produce the proof of these changes.
You can update your address with New York State DMV within 10 days of change in permanent address by filing Form MV232, or go online at https://dmv.ny.gov/mydmv/mydmv. Notify taxing authorities by filing Form 8822 Change of Address with IRS and updating your address online with NYS. File a final resident return of any pro-rated state taxes from NY, and if you continue to earn income in NY, file as a non-resident using your Florida address. Notify the Social Security Administration of your Florida domicile. Register to vote, and vote in Florida. File a Declaration of Florida Domicile in your county official records, indicating you intend to be a Florida resident. Establish homestead. If you own and occupy your home as your permanent residence on January 1, you can timely file your application with the county tax assessor through March 1. Once approved, you will continue to benefit from the homestead tax exemption and cap on increases in real property taxes annually, for as long as you continue to qualify for the exemption.
Talk to your estate planning attorney about changing your wills to Florida wills, and the situs of your trusts to Florida, if possible. Use Florida health care directives and powers of attorney, which are available as part of your Florida estate plan. Certain language may need to be included in your documents related to your Florida homestead. Another benefit to creating a Florida estate plan is that it may reduce the cost of probating your will in a Florida court. Some Florida courts are now requiring an affidavit of a New York attorney and research on New York law to show that the will was executed, attested and notarized pursuant to New York law at the time the will was signed.
Switching from “Snowbird” to “Florida Resident” takes planning and proof. Let your estate planning attorney help you get started.
¹ N.Y. Tax Law §952(a).
² See In re: Daly’s Estate, 178 Misc. 943, N.Y. St. 2d 954, 959 (Surr. Ct. New York City, 1942) (“The provisions of the [prior version of the] Tax Law have no application to a determination of domicile in an estate tax proceeding. They are confined exclusively to liability for an income tax.”).
Jennifer L. Fulton, Esq., is an attorney of counsel at Schwartz Sladkus Reich Greenberg Atlas LLP (“SSRGA”), www.SSRGA.com, focusing on Estate Planning, Probate, and Estate and Trust Administration. A member of the Florida Bar since 1996 with a Juris Doctor degree from Nova Southeastern University, Fulton works with clients to plan for the milestones of life (college, “adulting”, marriage, children, grandchildren, aging parents, pre- and post-divorce, loss of a spouse, aging, diminished mental capacity) and administration upon death. She can be reached at 561-769-5600 or jfulton@ssrga.com.
This information is provided for general educational purposes and may not apply to your specific situation. Please consult with an attorney before relying on this information.