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Many clients whose family circumstances and employment situation permit them to spend in excess of six months every year in Florida may elect to become Florida residents. The biggest advantage, compared to being Michigan residents, is that Florida has no state income tax. So-called earned income, such as salaries, will continue to be taxed in the state in which they are earned, but “unearned” income such as dividends, interest, rents and retirement benefits will not be subject to state income tax if the recipient is a Florida resident.
Property and Local Tax Considerations
The biggest perceived disadvantage to changing legal residence to Florida is that Michigan and Florida only permit residents to claim a homestead exemption (referred to as the “Principal Residence Exemption” or “PRE” in Michigan); accordingly, a change in residence from Michigan to Florida results in the loss of the Michigan PRE. The PRE exempts your principal residence from the local school district tax of up to 18 mills. Mills are the taxes per each $1,000 of assessed value of your home. Therefore, if the assessed value of your Michigan residence is $300,000 (i.e. an assumed fair market value of approximately $600,000) and your local school millage is the maximum of 18 mills, the principal residence exemption would save you $5,400 annually in property taxes.
It should be noted that changing your residence and rescinding your PRE does not result in a change of the taxable value of your Michigan property (“uncapping”) as long as you continue to own it. If you have owned your Michigan home long enough to have an artificially low real estate tax value (i.e. the cap on annual reassessment of your home’s value on which your property taxes are based means that your taxable property value is lower than it would otherwise be if reassessed annually), that cap on reassessment of the taxable value will not change. The PRE only relates to the local school district tax, so rescinding your PRE means you lose the ability to avoid the local school district tax.
Becoming a Florida resident does permit you to qualify for the Florida homestead exemption, which reduces your assessed value by $25,000 plus an additional $25,000 for non-school taxes on assessed values between $50,000 and $75,000. It also limits future annual increases in assessed value to the lesser of three percent or the percentage change in the Consumer Price Index.
Planning for the Homestead Exemption
There are numerous steps you should take even if you are changing your residence for income tax purposes and do not have a Florida residence that qualifies for the Florida homestead exemption. Be aware, however, that if you become a Florida resident you will lose your PRE in Michigan even if you do not claim a homestead exemption in Florida. You cannot elect to preserve a more valuable Michigan exemption by simply forgoing a claim of homestead exemption in Florida.
Before turning to the rather intricate steps involved in claiming a homestead exemption in Florida, you should plan to:
- File a Declaration of Domicile provided by the County Clerk of the county to which you are moving. Each county generally makes the form available on its website.
- Rescind your personal residence exemption in the Michigan county you formerly claimed as your residence.
- Register to vote in your new Florida county.
- File your tax returns with the IRS Service Center in Atlanta as a Florida resident. Remember to file a Michigan return as a partial year resident if you change your residence mid-year or as a non-resident if you continue to have earned income in Michigan.
- If you plan to apply for a driver’s license in Florida, you should do so within 30 days of filing your Declaration of Domicile. You should also be sure to register your vehicles and insure them with a company doing business in Florida within 10 days of establishing residency.
- Consider making other less critical changes like updating the address on your passport, maintaining a Florida bank account and using your Florida address on your credit cards.
Reviewing Your Existing Estate Plan
In addition to these important recommendations, nearly every Florida attorney who addresses the topic of changing your residence suggests reviewing your existing estate plan. While an estate plan that is valid where it was signed is valid anywhere, Florida has specific requirements that may warrant an update. For example, Florida law is stringent with regard to who may serve as the personal representative of a decedent’s estate. The personal representative must be one of the following: a Florida resident, certain non-resident family members or entities qualified to do business in Florida.
Additionally, all powers of attorney are given immediate effect in Florida; Florida does not permit springing powers of attorney that are only effective upon incapacity. Florida law does not recognize handwritten or “holographic” wills. Florida does not recognize no-contest or “in terrorem” clauses, which states someone contesting a decedent’s will or trust receives nothing pursuant to the will or trust as a result of their legal challenge. Finally, you may need to incorporate language in your trust to qualify for Florida’s homestead exemption, whereas special language is not required to obtain Michigan’s PRE.
Our Estate Planning Practice Team includes several attorneys licensed to practice in Florida, as well as attorneys dually licensed in Florida and Michigan who can help with your residency transition. Please contact one of our Estate Planning Attorneys if you have any questions about changing your residency or reviewing your estate plan.