February 5, 2009 - by Jennifer R. Howell
  
Are You a Florida Resident?

 
Perhaps a better question to ask is: "Does the state you left still consider you a resident there?" Florida is considered a tax-friendly state. Many people wish to avoid the state income, gift, inheritance, capital gains, or estate taxation imposed by their previous state of domicile. Others seek the favorable Florida creditor protection laws, including creditor protection for homestead as well as the advantage of the "Save Our Homes" cap on property tax increases. However, those who want the tax advantages of Florida residency without really moving could face problems such as state taxation claims made by the non-Florida jurisdiction and competing probate proceedings after death.

What is residency or domicile? Many states define domicile in a way that is inherently subjective and difficult to prove. There is no universal definition of domicile although the states and the IRS share a general understanding of its meaning which focuses on the intent of the individual. Florida views your legal residence or domicile as the place where you fix an abode with the present intent of making it your permanent home. From a Florida standpoint, you need only to prove your residency to the county property appraiser's office for purposes of obtaining the homestead exemption.

The property appraiser requires the following proof:

-- A valid Florida driver's license or a Florida I.D. card, if you do not drive;
-- Charlotte County voter registration or Declaration of Domicile, if you do not wish to register to vote;
-- Florida vehicle license plate number for all vehicles.

Proving domicile

While Florida's test is fairly easy, the more difficult test is proving your abandonment of your prior domicile to the taxing authorities in the prior state. The first step should be to review the law of the former state of domicile with a qualified advisor in that state. Once your advisor has determined the key elements tested in the state you are leaving, then the next step is to meet as many of those elements as possible. The elements considered generally include whether the following things were done:

-- Purchase or rent a residence in Florida and move in. If purchasing a home, file for the homestead exemption;
-- Replace as many non-Florida advisors with Florida advisors as possible; not only to prove domicile change but to avoid errors by advisors unfamiliar with Florida law;

This newsletter is for general information and education purposes only. It is not offered as legal advice or legal opinion. To the extent this message contains tax advice, the U.S. Treasury Department requires us to inform you that any advice in this letter is not intended or written by our firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from our firm relating to Federal tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer.

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-- Consult a Florida attorney to have estate planning documents reviewed and changed to reflect Florida laws;
-- Declare Florida to be your place of residence in all forms that require recital of residence, such as Social Security Administration papers, passports, contracts, deeds, leases, credit cards, etc.;
-- Set up Florida banking and investment arrangements;
-- Have all income sources and direct deposits sent to Florida financial institutions;
-- Consult with a physician in Florida and have your medical records sent to the Florida doctor;
-- Avoid spending significant amounts of time in your former state of residence;
-- File Federal income tax returns using your Florida address and mail them to the IRS in Atlanta, Georgia;
-- Remove contents of safe deposit boxes outside of Florida and move the contents to Florida;
-- Join social, political and religious organizations in Florida and change your memberships in out of state organization to non-resident status;
-- If possible, limit business activities in the former state;
-- Have all mail, bills and subscriptions sent to your Florida address.

Why it matters

If enough revenue is at stake, an ambiguous domicile may trigger the taxing authorities in the prior state to begin a residency inquiry or domicile audit. The flow of money is what piques the interest of the taxing authorities. Events that typically trigger an Inquiry are divorce, death, or the sale of a home or business. The burden of proof generally falls to the taxpayer to show that they have abandoned their prior residence and therefore should not be subject to taxes in the old state. Defending a residency inquiry can cost you or your heirs significant time and money. Accordingly, it is important to properly plan and consult with competent advisors in both Florida, and in the prior state of residence to assure that your domicile planning will accomplish its objectives.