Estate Planning for Florida Snowbirds, 1213 RIBJ, 62 RI Bar J., No. 3, Pg. 11

Author:David J. Correira, Esq. Correira & Correira LLP Eric D. Correira, Esq. Correira & Correira LLP
 
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Estate Planning for Florida Snowbirds

Vol. 62. No. 3 Pg. 11

Rhode Island Bar Journal

December, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 November, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 David J. Correira, Esq. Correira & Correira LLP

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Eric D. Correira, Esq. Correira & Correira LLP

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Many Rhode Island, Massachusetts, and other New England attorneys find their older clients heading south to Florida for the winter. While Florida offers retirees warm weather, golf and beaches, it also presents the opportunity to significantly reduce one's overall tax burden. Florida currently has no state income tax or state estate tax, and its real estate tax laws favor residents over nonresidents. In many instances, the tax savings alone for a Rhode Island client moving to Florida will cover the expense of living in the Sunshine State, so long as domicile is established and appropriate estate planning is implemented. If a Rhode Island attorney is advising a client with interests in both Rhode Island and Florida, it is important for him or her to understand the difference and interplay between the laws of the two states, as well as neighboring states such as Massachusetts. Because most Florida retirees maintain some connection to Rhode Island (and one day may return to the Ocean State due to the death of a spouse or declining health), problems can arise if both states' laws are not considered when preparing an estate plan.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0We provide a summary of the important distinctions between Rhode Island, and its neighbor Massachusetts, and Florida in the areas of tax, creditor protection, Medicaid, and incapacity, as well as the planning techniques available to structure one's estate plan to optimize those differences. A brief ethical discussion of Florida's strong stance against the unlicensed practice of law concludes the piece.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Establishing Florida Domicile

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0To take advantage of Florida's favorable tax laws, one must become an actual Florida resident, instead of merely a Rhode Island resident spending time in Florida. In both Rhode Island and Florida, the standard used to determine if an individual has established domicile is whether he or she: 1) is physically present in the given state; and 2) intends to make that state his or her permanent residence.1 The same standard is applied in other states, including Massachusetts[2] The first, and more straightforward prong of the two-part test, physical presence, is fulfilled when one purchases a home (or rents an apartment) in the new state and spends time during the year living in that residence. The second prong, the intent to be a resident, involves weighing those factors indicative of the intent to be a resident of the new state against those showing an intent to remain a resident of the former state.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Deblois v. Clark, the Rhode Island Supreme Court applied the domicile analysis to a married couple who relinquished their Rhode Island residency in favor of Florida. While the couple purchased a home in Vero Beach, Florida, they also retained a condominium in Warren, Rhode Island, and spent time throughout the year at both homes. After they had filed income tax returns for three years as Florida residents, the Rhode Island Division of Taxation challenged the couple's purported residency.3 The matter was first heard before a Rhode Island District Court judge, who determined that the couple had failed to establish "clear and convincing evidence" of an intent to become Florida residents.4

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0On appeal, the Rhode Island Supreme Court first determined that the "clear and convincing evidence" threshold was incorrectly applied by the District Court, noting that the applicable burden of proof in general tax cases is merely a "preponderance of the evidence."5 Having established the appropriate evidentiary standard, the Court next applied the two-prong test to the facts before it. While the couple continued to have connections to Rhode Island, including ownership of a condominium, association with the business community, and visits with family members on holidays and special occasions, the Court noted that the domicile test does not require a complete severance of one's ties to his or her former residence. Instead, after reviewing all of the relevant evidence, the Court concluded that the couple had established both a subjective and objective intent to become Florida residents. The Court stressed that the couple spent the majority of each year in Florida, the value of the couple's real property and personal possessions in Florida was greater than those in Rhode Island, and that the couple had filed a Florida homestead, obtained Florida driver's licenses, changed their voter registration to Florida, executed Florida last will and testaments, opened Florida bank accounts, joined Florida civic, social, and religious groups, and become active in Florida politics[6] While the Rhode Island Division of Taxation raised the additional concern that one of the couple's reasons for changing residency to Florida was avoidance of Rhode Island taxation, the Court pointed out that "Although a motive to avoid taxes without additional evidence to establish domicile may militate against finding a change in domicile, a person may move to a new state for tax reasons and have a bona fide intention to establish domicile in that state."7

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0As the DeBlois case illustrates, there is no hard and fast rule for establishing domicile (such as the common misconception that being physically present in Florida for "six months and a day" will satisfy the test), histead, courts will review all of the relevant facts and circumstances when a question of one's residency arises. If an individual intends to become a Florida resident, and wants to minimize any potential issues from such a change, his or her attorney should provide a checklist of steps to follow. These steps include, but are not limited to: filing a homestead exemption; changing the primary address for credit cards and bills; changing voter registration; changing title to automobiles; obtaining a Florida driver's license; executing Florida estate planning documents; opening Florida bank and financial accounts; filing income tax returns as a Florida resident; acquiring Florida burial plots; consulting with a Florida physician; joining Florida social and religious organizations (and changing membership status with non-Florida social and religious organizations to non-resident); becoming active in Florida politics; and opening a Florida safety deposit box. In addition, one should file a Florida Declaration of Domicile with the Clerk of the Circuit Court for the county of residence in Florida. This filing, authorized under the Florida Statutes, allows one to place in the public record a sworn statement that he or she resides in Florida and intends to make Florida his or her permanent residence, serving as further evidence in support of a genuine change of domicile.8

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Homestead Law Comparison

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0One of the major benefits of changing one's domicile to Florida is its favorable homestead laws. Florida offers not only a homestead for creditor protection, but also a separate homestead for protection from significant yearly increases in the property tax assessment of one's principal residence.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Rhode Island, a home owned by an individual (including life tenants and trust beneficiaries) is exempt from attachment if the individual "occupies or intends to occupy the home as his or her principal residence." The Rhode Island homestead for creditor protection is automatic, and unlike many other states, does not require a document to be filed in order to assert the right. The Rhode Island creditor protection homestead shields the first five hundred thousand dollars ($500, 000) of equity in the property. Exceptions to the creditor protection afforded by the homestead include, but are not limited to, mortgages obtained for the purchase of the real property and tax liens and assessments.9

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