Moving from New Jersey to Florida now offers a lot more than year-round warm weather and a relaxed lifestyle. The move may save you thousands in income taxes and state death taxes, both of which have become increasingly costly to New Jersey residents and do not exist in Florida. Only Florida residents may take advantage of Florida’s favorable tax laws. Whether or not you qualify as a Florida resident depends on whether your circumstances and actions demonstrate your intent to establish Florida as your domicile.
You may not realize that your estate could pay significant taxes to New Jersey because of recent changes in the state estate tax laws. The federal estate state death tax credit was phased out in 2005. As a result, New Jersey amended its estate tax to avoid a loss of revenue. A New Jersey resident decedent with an estate in excess of $675,000, which passes to someone other than a spouse, pays a New Jersey estate tax at rates that can reach as high as 16%. The New Jersey Estate Tax does not apply to nonresident estates.
New Jersey also imposes an inheritance tax on property transferred by resident decedents at death to beneficiaries other than the decedent’s parents, grandparents, children, and other issue (i.e., exempt beneficiaries). The inheritance tax only applies to non-resident decedents who own real estate in New Jersey and who transfer that real estate to a non-exempt beneficiary.
The good news for taxpayers is that a few states, such as Florida, are swallowing the revenue loss as a result of the repeal of the federal state death tax credit. There is no state estate or inheritance tax in Florida. Florida also imposes no individual income tax on income or capital gains. New Jersey, on the other hand, imposes an income tax which taxes wages, tips, bonuses, commissions, income received from the operation of a business, interest income and dividend income.
Florida is not a complete state tax haven as residents are subject to a tax on “intangible assets” such as stocks and mutual funds. However, there are estate planning techniques which can circumvent the imposition of the intangibles tax. These techniques are relatively inexpensive and efficient to put into place.
To take advantage of the favorable tax laws in Florida, a New Jersey resident must change his or her domicile to Florida. A person's domicile is the place where he or she has his or her true, fixed and permanent home and which, whenever the person is absent, he or she has the intention of returning. You may have several residences and maintain resident status in multiple states, but can have only one domicile.
Domicile is determined from all of the facts and circumstances, but intention is the decisive factor in the determination of whether a residence is a domicile. If you change your domicile to Florida, New Jersey may assert a claim against your estate for a state death tax if the change of domicile was not properly effectuated. The process of resolving a challenge to your domicile is determined on a case-by-case inquiry. The State may look at several objective factors, such as the state in which you are registered to vote; the address listed on your federal and state income tax returns; and estate planning and other legal documents that reference domicile and the jurisdictional laws that apply, to determine your state of domicile.
In sum, a change in domicile from New Jersey to Florida could provide you with substantial state estate, inheritance and income tax savings. However, great care must be exercised to ensure that you have taken the correct measures to effectively change domicile from New Jersey to Florida or you may risk an adverse determination if challenged by the state taxing authorities.
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