(This is our continuing blog on estate planning, business and succession planning, probate and trust administration, and real estate law. Our focus is on the laws of Michigan and Florida, where we have offices in Oak Park and Grand Rapids, Michigan, and Fort Myers and Naples, Florida.)
Thousands of people relocate permanently to Florida each year. Thousands more are “snowbirds” who spend some or all of the winter months in The Sunshine State. Besides the year-round warm weather, there are several other factors that make moving to Florida attractive.
There is no state income tax in Florida. Nor does Florida have an estate tax (charged to a decedent’s estate) or inheritance tax (charged to the person who inherits the property); neither does Michigan, by the way. In fact, Florida ranks favorably compared to most other states when it comes to overall tax burden and business climate.
In addition to tax advantages, Florida law offers asset protection to individuals beyond what is available in many other states. Most notably, the Florida Constitution protects homestead property from general creditors. Florida also has favorable laws protecting wages, retirement plans, life insurance, annuities, and more.
In order to benefit from these laws, Florida must be your “domicile.” Under the laws of each state, you may have more than one “residence” (a place where you stay for a period of time), but only one domicile (a place where you intend to remain or return). The key to distinguish between your residence and domicile is your intention to remain or return. Since intention is a subjective concept, determining domicile is not always clear-cut. If you want to bring certainty to the question of your domicile, you must take actions that show your intent.
If you quit your job in another state, sell all of your property and move to Florida, where you buy or lease a home, receive your mail, get a new job, get a driver’s license, register to vote, register your car, and enroll your kids in school, all with the intent to stay in Florida, there can be no doubt that your domicile is in Florida. You have no property or significant personal or legal connections to your old state.
But if you come to Florida for a portion of the year and buy or lease a home, while still owning a home in another state, or even if you reside here all 365 days of the year but leave significant property like cars, boats, or personal items in the other state, or maybe even keep your job in the other state, it can be unclear which state is your legal domicile. You may have heard that the answer depends entirely on where you spend more than half the year, but that is not correct. Where you spend most of your time is one factor to show your intent, but it is not conclusive.
The Consequences of Mistaken Domicile
The consequences of not firmly establishing your domicile are 1) potential, unexpected state tax liability, and 2) uncertainty for your estate and asset protection plans. Your former domicile state that levies income, estate, or inheritance taxes has strong incentive to challenge your claim to Florida domicile because it could mean additional tax revenue for them. Likewise, creditors may be motivated to challenge an uncertain Florida domicile to deny you the benefits of Florida’s favorable asset protection laws.
The issue of domicile can also create unexpected, adverse consequences for your estate if you mistakenly think you have maintained your domicile in another state, but actually have legally established a Florida domicile. For example, the Florida Constitution restricts who may inherit your homestead when you are married or have minor children. If you plan your estate mistakenly believing that your domicile is in another state and that the settlement of your estate will be governed by those laws, but it is determined after your death that you were domiciled in Florida, the law may not permit your Florida homestead to be left as your estate plan intended. Or, if you named someone from another state to serve as the personal representative of your estate believing you are domiciled in that state, but Florida is determined to be your actual domicile, your chosen personal representative, unless they are a close relative, will not qualify to serve as the personal representative of a Florida probate estate.
The burden of proof to establish domicile is on you, so you should take deliberate action to build your case from the start.
Building Your Domicile Case
There are many things you can do to build your case that you are domiciled in Florida. On the other hand, if you intend to maintain your domicile in another state, you want to steer clear of actions that would suggest otherwise, and take affirmative actions to prove your intent.
One tool that allows you to expressly declare your intention to be domiciled in Florida, or to retain your domicile in another state, is a Florida Declaration of Domicile. Section 222.17, Florida Statutes provides for a method of preparing and recording a document expressly declaring your intentions. But signing and recording a Declaration of Domicile is not, in itself, conclusive proof of your domicile. Your actions and your personal and legal relationships to a particular state are still relevant.
Below are several, but not all, of the more important issues and items that determine where you are legally domiciled:
- Obtain driver’s license, car registrations, and register to vote where you want your domicile. (In Florida, state law requires that, if you drive, you obtain a Florida driver’s license and register your car within a certain period of time after establishing residency, so you need to be aware of this to comply with state law, not just to establish domicile).
- Receive your mail, and use your domicile address in all of your legal and personal documents such as bank accounts, credit card accounts and tax returns.
- Spend the majority of your time in the state of your desired domicile.
- File for your state homestead property tax exemption in your desired domicile, and make sure any prior exemptions in another state are revoked.
- Establish relationships in your state of choice with professionals (doctors, attorneys, accountants), and become active in clubs or churches in your intended domicile.
- Execute new estate planning documents that expressly declare your domicile and incorporate state-specific provisions.
- Take action to affirmatively cut ties with prior domicile states by:
-filing “final” state tax returns to clearly advise the state of your
-revoking voter registration in your prior domicile state,
-changing your address of record with all persons, organizations,
and service providers that you do maintain relationships with in
your former state,
-revoking any previously recorded declaration of domicile in another
-moving most of your personal possessions and important assets to
your chosen domicile.
If you intend to change your domicile, do so carefully and don’t use half-measures. The consequences are too great. And if you do not intend to change your domicile, be aware of the issue of domicile so that you do not inadvertently create uncertainty for yourself when you reside in more than one state. Although your intention might be clear in your own mind, you, or your heirs, may be required to offer objective proof in support of your stated intention to avoid challenges by other states or creditors.