Many people move to Florida or establish residency here not only for the sunshine but also to minimize their tax burden. When you move to Florida, it’s wise to consider an update to your estate plan.
Florida residency offers several advantages. Since Florida does not have a state income tax, the tax on unearned income that may have occurred in the former home state is saved. Further, with the Save Our Homes property tax assessment caps, one can achieve tremendous property tax savings over time.
When folks declare Florida residency, I am frequently asked whether one should update their estate planning documents when declaring they make such a declaration. I often hear something along these lines of, “My Illinois attorney prepared my trust, and when I told him we were becoming Florida residents he told me my trust is just fine.” When I challenge what they understood to be their attorney’s advice, sometimes I’ll hear “Well his law partner is also licensed in Florida, and they both said I’m fine.”
I believe this is bad advice. Allow me to explain.
Each state has different laws that apply to estate planning documents, including wills, trusts, durable powers of attorney, health care surrogates and living wills. While the federal transfer (estate and gift) tax systems apply to everyone in the United States, some states have a death tax. Florida does not.
More importantly, for those that have created Revocable Trusts in northern jurisdictions and own a Florida home, unintended consequence might arise if the estate plan is not updated. This is due to Florida’s descent and devise laws surrounding Florida homestead. This can be explained by example.
Assume that Bob and Sue bought a home on Sanibel many years ago. When they purchased the home, it was a vacation property, and their Chicago attorney advised them to put the home in Sue’s Revocable Living Trust. The attorney explained that Bob and Sue should balance their estates for federal estate tax purposes by putting some assets in Bob’s trust and some assets in Sue’s. Since no one knows who is going to die first, by placing the home in Sue’s trust they have used its value against Sue’s federal estate tax exemption should she predecease Bob.
Fast forward several years. Bob and Sue have retired from their occupations and have declared themselves Florida residents. They make application to treat their home as Florida homestead. Bob and Sue are quite pleased that the Save Our Homes property tax assessment cap will finally apply to their Sanibel residence.
Bob and Sue also better update their Revocable Trust documents. Recall that if Sue dies first, her trust assets will first be “funded” into a credit shelter or family trust to be used against her estate tax exemption. Assume that the credit shelter trust is held solely for Bob for the rest of his life.
Florida homestead descent and devise law says that if you are survived by a spouse, absent any nuptial agreement waiving certain rights, you must devise the home outright in fee simple to your spouse. If you do not, then your will or trust contains what is known as an “invalid devise.” In that event, your spouse receives a “life estate” interest in the home, and the children of the deceased receive a present “remainder” interest.
Despite the fact that Sue’s trust says the home would be funded into a credit shelter trust held for Bob, Florida law treats this as an invalid devise. It therefore does not matter whether Bob is the primary beneficiary of Sue’s trust. So Sue’s children receive a present remainder interest and Bob receives a life estate. Again, this occurs despite any contrary intent expressed in Sue’s documents.
Bob is consequently responsible for the taxes, expenses and upkeep of the home. If Bob wants to sell the home, however, the children must agree with Bob and must sign any listing agreements, contracts to sell or deeds. Further, the children are entitled to part of the proceeds of the sale of the home.
If Sue and Bob are in a second marriage, only Sue’s children receive a remainder interest. Not Bob’s. Again, this is the case despite any contrary intention in Sue’s will or trust.
Furthermore, if Sue’s children get divorced, have creditor issues or other problems, those problems may cloud the title to the residence.
This can all be avoided through proper planning with Florida documents.
This is only one example of how Florida law is different. Our laws surrounding the administration of trusts, the apportionment of taxes and expenses after one dies, durable power of attorney, health care surrogate and living will laws are all different than other states.