Thinking of Establishing Florida Residency?: What to Consider Before Changing Your Legal Residence
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.
The biggest perceived disadvantage to changing legal residence to Florida is that both Michigan and Florida permit only residents to claim a homestead exemption, so a change in residence to Florida results in loss of the Michigan homestead exemption (now referred to as the "Principal Residence Exemption"). The principal residence exemption exempts your principal residence from the local school district tax 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 $600,000), and your local school millage is the maximum 18 mills, the principal residence exemption would save you $5,400 in property taxes.
It should be noted that changing your residence (assuming that you do not sell your Michigan home) does not result in "uncapping" the limit on the taxable value of your property. If you have owned your Michigan home for a long time and it has an artificially low real estate tax value as a result, that limit on the taxable value will not change. All you lose is the ability to avoid the local school district tax.
The steps necessary to change your residence are quite simple if you are simply changing your residence for income tax purposes and do not have a Florida residence that you wish to qualify for the Florida homestead exemption. Keep in mind that if you become a Florida resident, whether or not you claim a homestead exemption in Florida, you will lose your personal residence exemption in Michigan – i.e. 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 that 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.
- Consider making other less critical changes like changing the address on your passport, maintaining a Florida bank account, and using your Florida address on your credit cards.
Additionally, one change suggested by virtually every Florida attorney who addresses the topic of changing your residence is signing new Florida Wills and Trusts. This is not essential. An estate plan that is valid where it was signed is valid anywhere. The only Florida requirement that might trip you up is naming a non-family member or a bank not qualified to do business in Florida as your Personal Representative or Trustee. This would suggest a change in your documents. Also, if your estate plan includes irrevocable trusts that are taxable in Michigan, you should explore changing the situs of the trusts to Florida to avoid Michigan income tax.
Our Estate Planning practice group includes two attorneys licensed to practice in Florida as well as Michigan. Please contact us if you have any questions about changing your residency, or signing new Florida Wills and Trusts.
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- Estate Planning Advisory, December 11, 2017
- Estate Planning Blog Post, September 16, 2016
- Grand Rapids Business Journal, February 22, 2016