While it’ll be years before we fully grasp all the consequences of COVID-19, an apparent pattern of occasionally high-profile relocations—Texas and Florida being the two most prominent destinations—has already stirred a lot of discussion. Although the total number of moves nationwide has actually decreased (according to Bloomberg), COVID has almost certainly had a big impact on who is moving and where they’re headed. If you’re considering the Sunshine State, you may be wondering what the advantages are and today’s topic will provide and overview of the various estate planning advantages of relocating to Florida. Note, we are using “estate planning advantages” to refer to the top legal, tax and asset protection advantages related to becoming a Florida resident. So, let’s dive in!
TOP FIVE ESTATE PLANNING ADVANTAGES OF RELOCATING TO FLORIDA
Elon Musk famously took a break from building rocket ships and left California for Texas. The Lonestar State also welcomed in comedian and enormously popular podcaster Joe Rogan. And Business Insider reports that more than a few Wall Street moneymen have left New York behind for the Florida sunshine. There’s even talk of moving the New York Stock Exchange itself to Florida, which would have seemed preposterous in the pre-COVID world.
Realistically, there are a host of different reasons influencing movers. Employers’ increased use of videoconferencing aps like Zoom and Skype has made working from home much more practicable. Nearly 70% of employees were working from home at one point. And when you aren’t tied down geographically by your employer, moving becomes a much less daunting prospect.
Unfortunately, the 22 million and counting job losses attributed to COVID and the resulting shutdowns have also incited more than a few relocations, as newly unemployed workers move in search of new employment. States that implemented more limited shutdowns—like Florida and Texas—often present more promising employment prospects than states with more comprehensive closures.
Without going into the underlying politics, COVID has also highlighted the sometimes-marked differences in legal climates from one state to another—another factor influencing the choice of destination. Florida in particular offers an attractive legal climate for businesses and individuals looking to preserve wealth. If you’re considering a move, here are the top five estate planning advantages of relocating to Florida in our humble opinion.
No State Income or Estate Taxes
Most people recognize that a certain level of taxation is necessary, but pretty much no one actually enjoys paying taxes. If you’re a fan of low taxes, Florida has a lot to offer.
Only seven states have zero state-level income tax. Florida is one of them. That and the warm weather have made Florida a popular destination for retirees for quite some time. And, as COVID transplants know, current wage earners also benefit. After all, the same salary looks bigger without state income tax withholding. Needless to say, the IRS still wants its money. And Florida has other taxes (like sales and hospitality taxes). But avoiding state income tax has been a motivating factor for more than a few new Florida residents.
If you’re at the point where you’re thinking more about planning your estate than earning wages, Florida also lacks any estate or inheritance taxes. Although qualifying Florida estates still have to pay at the federal level, you can preserve more wealth in Florida than in states that impose a “death tax,” such as New York or New Jersey.
Only a minority of states charge state-level estate taxes, but Florida still stands out because estate taxes are expressly prohibited by the state constitution. That means a constitutional amendment (and not just new legislation) would be needed to add an estate tax in the future.
The Florida Homestead Act
In a nutshell, the Florida Homestead Act, which is also built into the state’s constitution, prohibits creditors from attaching real estate that qualifies as a “homestead” under the law. Creditors aren’t able to force a sale of a homestead to satisfy a judgment or to place an involuntary lien on the property. Florida homesteads are even protected from liquidation in bankruptcy.
Most states have homestead exemptions, but Florida’s is special because it’s uncapped, with no limit on the value of a protected property. By comparison, California and New York limit homestead protection to $300,000 and $85,400 (in both cases, depending on the county in which the real estate is located). Even more, Florida law doesn’t stop homestead owners from transferring wealth into a homestead (through improvements or mortgage payments, for instance), to maximize wealth protection.
Florida’s homestead laws also benefit homestead properties in real estate tax calculations. Up to $50,000 of a residential home’s value is exempt from assessment, so a home valued at $300,000 is taxed as if its value is $250,000. A fairly recent amendment further limits property taxes on homesteads by capping annual assessed-value increases to three percent or the CPI rate of inflation, whichever is lower. As a result, homeowners don’t get hit with big property tax increases if property values go up dramatically. The de facto exemption resulting from the limit on annual increases is also “portable” and can be transferred from one Florida homestead to another.
Strong Laws Protecting Assets from Creditors
While the uncapped homestead exemption gets the most publicity, strong Florida asset protection laws offers strong protections for shielding other assets against creditor claims. Under Florida’s exemption statutes, wages earned by a head of household are exempt from attachment. Life insurance protections in Florida provides that cash value stored in a permanent life insurance policy are also protected against an insured person’s creditors. Retirees frequently benefit from Florida’s exemption for wealth held in annuities, which is likewise protected from creditor attachment.
There are also favorable rules for Florida dynasty trusts, which makes it a good jurisdiction if your goal is to preserve wealth in Florida through multiple generations.
Special Protections for Assets Owned by Married Couples
Under Florida law, any assets co-owned by a married couple under certain conditions are assumed to be owned as tenants by the entireties. The tenancy by the entirety laws in Florida for spousal ownership offers some nice wealth management features. First, there is a “right of survivorship,” which means that, when one owner dies, the other automatically receives full title to the asset, without any need for Florida probate.
Additionally, if an asset is held as tenants by the entirety, creditors of only one spouse cannot attach it. If both spouses owe the debt, attachment may still be possible—unless the asset is protected by one of the exemptions described above.
Many states offer the tenancy by the entirety model for real estate, but Florida allows it for just about any type of asset that can be jointly owned—land, personal property, financial accounts, and even intellectual property can be co-owned as tenants by the entireties. And any asset held in a Florida tenancy by the entireties enjoys the same protections against creditor claims.
Along with the attractive framework for financial planning and asset protection, Florida also provides a business-friendly legal climate that can be enticing for entrepreneurs considering relocation. In general, Florida is among the nation’s most pro-business jurisdictions, with (for example) “right to work” and at-will employment laws. And, of course, the absence of any state-level income tax can increase an existing business’s profitability and make it easier to attract talented employees. The Florida legislature also recently revamped the state’s Florida Limited Liability Company Act Revised in 2015, which increases flexibility and reduces potential transaction costs and paperwork—particularly for new small businesses which form Florida LLCs.
According to the Miami Herald, three of the top five relocation destinations during the COVID era are in Florida (Tampa, Orlando, and the Miami area, if you’re wondering). The warm weather and friendly people undoubtedly have something to do with it, but we think Florida’s financial and business laws play a part, too. If you’re considering a move and want to know how Florida law might affect your personal finances or business, you should consult with a Florida-licensed estate planning attorney familiar with the state’s financial and commercial laws.
Steve Gibbs, Esq.