Episode # 254 – Tired of Living in a High Tax State? Here’s Something You Can do About it.

August 21, 2020

Many listeners have asked about the financial implications of making the State of Florida their primary residence. I’ve recently discovered a very helpful book on the subject, and today I speak with E. Michael Kilbourn, co-author of The Florida Domicile Handbook.  Michael is a leading national authority on the complexities of domiciling in Florida. We discuss the many advantages of establishing a Florida domicile including savings on individual and corporate income taxes, estate planning and more.

Program Length: 20 minutes

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Transcription:
The content shared on your life, your wealth network reflects the views of the host and guests of the program only and are not necessarily the views of Cordasco Financial Network or its advisers. This media production is educational in nature and should not be construed as financial, legal or tax advice or a solicitation or presentation of sale of any financial products or services. Please consult a professional prior to making any financial tax or legal decision.

Welcome to the your life, your well network, helping you find clarity and comfort for your life.

And well, now here’s your host, financial adviser and CEO of Cordasco Financial Network, Steve Cordasco.

Happy that you are joining us this week.

And by popular demand, so many of you listening have been asking about taxes in states that are more favorable in their tax treatment on income, as well as a state and other subjects where your wealth touches, where you live. So many of you have asked, hey, I’m thinking about going to a more friendly tax state, especially those of you in New Jersey, especially many of you who live in New York who listen.

And yes, the fact that Chip Kelly was a Philadelphia coach, we picked up a whole bunch of California listeners over the years. And that has come from you as well. And there’s experts out there that can help you in your retired years or at any point in time where you decide you want to move to a state that is more friendly to you from a tax standpoint.

There are experts out there, and I’ve come across an expert who focuses on Florida. And the reason why I’m bringing up Florida is because so many of us right here who are listening have asked me about Florida. And if you’ve seen the statistics that have come out post Cove, it the number of people who are leaving high tax states to low tax states. Number one, New York. New Jersey, California. Are the states losing lots and lots of people just like you? And in this water, here’s who’s winning. People just like you. Number one, Florida. And we will cover Florida in-depth.

Puerto Rico. Do you remember about four years ago, five years ago, Puerto Rico. Came up with a new tax code.

And we had consulates and those that represent Puerto Rico here in the United States as guest on air.

I visited Puerto Rico, looked at all it was offering.

Because not only do you avoid whatever state tax you might have, you can avoid a lot of federal tax there, but right now, Puerto Rico happens to be number two. So far this year, in accepting those that want to leave high tax states and Texas is number three. Joining me is Michael Colborne. He is coauthor of a book that I just I rip through it when? In about an hour and a half. For some, it might be a little bit of a heavy lift.

But to me, it’s a great educational book for those of you who are thinking about making a move to Florida. His book is the Florida Domicile Book, As Simple as That. And he’s president of Colborne Associates in Naples, Florida, a leading national authority on estate tax matters, an expert on complexities of Florida domicile. Michael Couloir. Welcome to the Your Life Your Wealth show. Well, thank you, Steve. Glad to help. You heard me say that by popular demand, this topic of state taxation and getting treated better. If you’re a retiree or someone who is is still working and looking for better tax treatment, Florida is a winner. And I would get trickling in every year to half a dozen dozen questions like, can you do a topic on this? Sometimes we do.

But just this past week on Fox News, Cavuto is interviewing an assemblyman from California who has proposed a tax bill that will tax income of wealthy who leave the state over a 10 year period. I’d like for our audience who may not have had an opportunity to hear. Cavuto. And the lawmaker, Democrat from California, who is proposing this bill. Let’s give it a listen.

We have a phased in approach whereby if you move in year one year, your 90 percent of the tax still applies to you, a year to 80 percent of the tax and so on for 10 years until it phases out. So we’ve looked at some of the well-known taxes.

Whoa, whoa, whoa, whoa, whoa. Are you saying it’s simply the day after they move and they’ve left? You’re still taxing. They’re no longer California residents. You can’t legally do that for 10 years.

The wealth was accumulated during their time in California during the nexus that they had with the state of California. And that is what we’re proposing in our bill. We believe we can do that. Certainly, we’re open to dialog and discussion as we move the bill forward. But we think it’s a sound approach and has strong legal foundation.

First off, if you can react to the assemblyman’s bill. Give me your take on his proposal of a 10 year graduated tax of those who leave. I know he’s not calling it an exit tax. And because you know what’s gonna happen if they’re lucky enough to get this thing through, Jersey and other states are going to jump in on it, too.

Well, they don’t have to the Supreme Court before that. But my reaction is, wow, what insanity that there is. That’s a good reason to leave the state of California. But truly, Florida is a great place to come to it, not just because of taxes that you keep mentioning taxes, but Florida has several benefits, like the weather, recreation, asset protection. That’s a big one in Florida real estate market. You just mentioned it, the Florida homestead law, which we might want to cover if you have time, and then the estate planning advantages in Florida. We’ve got you can set up a trust to last 360 years in Florida. So there’s a lot of good things going on, good reasons to make Florida your home.

So just taxes. But if you if you focus on taxes, we have compared to other states. You mentioned California. There’s the Jersey, New York, but there’s also Illinois losing one person every three minutes. I mean, that’s amazing.

But you probably can see why a lot of folks who have been able to accumulate some wealth worked hard. And one of the things that many want to do at some point in their lifetime is go to a warmer climate, more recreation. Everything Florida seems to have to offer. Right. So some folks get one foot in the state of Florida. They might have one foot in New Jersey or New York or a higher tax state. We need to get into clarity on that in that. What do you have to do to really get the benefits? And let me just share with everybody, if I would.

My I’m not trying to jump in front of you, but Florida state income tax for residents in Florida. Are you ready for this? Zero. And for certain corporations like EZCORP, it’s zero tax as well for the state. So my question, Michael, that I get from many who are considering Florida. How can a state like Florida afford to have a zero personal income tax and a zero tax for certain corporates like escort’s?

Well, we have so many visitors to Florida who spent lots of money in Florida, and that helps covers what you’d otherwise might have to tax the people for.

So when I used to go to Disney, when, you know, five kids and we spent our fair share and I think I’ve helped the economy pretty well in Florida by going to Disney, those visitor taxes and all those things that end up on your bill at the end. That’s a makeup, right, for Florida.

Sure. Look at the hotel taxes on top of it. You know, the basic taxes. So you’re like you’re talking about you go to a hotel and you look at your bill and suddenly it’s 10 percent or higher because of all the other taxes.

Yeah. What other ways do they make up for zero revenue on income tax?

Well, we have given out. We have pretty good industry in Florida, surprisingly. Now, I’m I’m more focused on the estate planning arena, but that makes sense if you’re from Naples, Florida, given the average age, etc.. But that’s another thing of the industry, that and growing and growing as we speak.

OK. So the numbers are huge of the amount of people coming into the state of Florida. I mean, we talk about one every three minutes leaving a state like Illinois and Florida. They’re just coming through the turnstile.

They’re getting a thousand people a day. That’s three hundred sixty five thousand a year. Wow. Florida.

Well, let’s jump in to what does someone need to do to get that zero income tax benefit from the state of Florida, knowing that, you know, they have a dream of being in Florida. They want to go to warmer climate. They don’t want to lose being near the family. Let’s just use New Jersey, for example. They may not want attorney so distant from the grandkids. So they want to kind of go back and forth a little bit. Can somebody go back and forth and just go down and get a driver’s license and say, OK, now I’m in Florida because I bought a house there and gets zero income tax?

Well, it’s certainly not that simple. In fact, if you don’t properly establish your your domicile, you expose yourself to a lawsuit from your old state and possibly thousands of dollars in taxes and attorney’s fees. So you have to prove your intent and do it properly. And that’s what we cover in Florida domicile handbook. There’s a whole section on it starting around page 111 and it tells you some of the steps you need to do. But one of the steps is to file a declaration of domicile. That is that’s a that’s a document. It’s not required by law, but it’s not a bad idea. And also sort of set the date. And there’s a lot of good reasons to set the exact date. But if you can even file it and put it back dated if you need to, you could say, well, I want to file before. But I became a resident last December. You can actually put that on the form. But here’s the big one and probably one that would come up in any kind of talk. And that is how much time do I have to spend in Florida? And you probably heard that you need to spend six months in a day. And that’s utter nonsense. I mean, the more time, the better. But actually, what if you had got. What if you parked it down in Miami? What if you got out of you that the state of New Jersey and you were traveling around the world, that you came to your your doc about one week a year? Are you a Floridian or are you from New Jersey? And the answer is, you do it right. You’re a Floridian. So you do not need to spend any particular amount of taxes. But the contrary might be true. In other words, the northern states like New Jersey and New York and Connecticut, you have to be and that’s if you’re in that state for one hundred and eighty three days, they sort of got you by statute. And at that point, you probably will not get around paying taxes for the year that you spent one hundred eighty three days in the northern states. So taking the right steps is important. Sure. Driver’s license, voting card, very important. But there’s other things you can do to prove your intent.

Let’s just give clarity to that 183 day thing, because when we were covering the Puerto Rico change, you probably remember that when Puerto Rico got kind of the special tax code outside of what the U.S. tax code is to try to drive business there, it’s not surprising. They’re number two today behind Florida of of getting the visitors from the state to stay there. But the six months in a day, it’s really you’re from what I understand, it’s whether or not you’re in the other state the majority of the time. So in Puerto Rico, there are many folks that would go over to Europe. They would spend three months in Europe, they might spend four months in the states, and then they spend the rest of their time in Puerto Rico. And the fact that they were not in one place the majority of the time, we all are hearing that they’re going to get much, much more aggressive in auditing those that change their domicile to states like Florida. I’d love to hear the other things that need to be done to just make sure that when that audit happens, not so much. On the Florida side, I don’t know of anybody who’s been audited by Florida, but I know many who have been audited by higher tax states after they leave. Share with us what they can do to protect themselves during that period that the states can audit that.

We’ve just noticed that you don’t you have to pay taxes for x rays this year, that last year period. And so they look at that. They say, we think that you were in our state. And so send us a check. Of course you object and then you end up hiring an attorney. But typically, what they’ll do before that is they’ll send you a letter saying, tell us what you know. Tell us a few things. And those three things are the kinds of things that we tell you to do, for example. And sort of what I’ll tell you as come from court cases up, maintain a safety deposit box in Florida, not in New Jersey. Well, you say. Why that? Well, because when you because of court cases that have come down where that was the hinging item, register your car in Florida. Well, people say, well, Mike, I keep my other car up in New Jersey and I never even take it to Florida. Well, I recommend, generally speaking, that you change that to a Florida car that Texas had any graters pay or your fee, et cetera, and make it a Florida car. I said registered to vote transfer financial assets to afford institutions, establish relationships with Florida professionals. These are things that are showing intent. And when you show intent, you’re proving that you’ve changed your domicile. The northern state can object all they want, but they will ask you questions like, well, what licenses do you still hold? New Jersey. Are you a member of a country club that requires you to be in New Jersey as a member? Or do you have an on resident license? Or how about the guy from Minnesota who went fishing? Now he went to his car. He will change to Florida, but he went back to his cottage on a lake. He went fishing. Do you think he bought an interstate fishing license or out-of-state fishing license? Well, guess what? He bought an in-state fishing license. And when they audited him said, well, you’re not a Floridian because you bought it in-state license. How could you do that if you thought they were from Minnesota and they put that right up high on the list of things they were auditing the gentleman for or their list of proof that he was a Minnesotan. So I think I get the point is that you need to take action and that I’ve got a whole list of items in the Florida domicile handbook that people can look at to see what they should should be doing.

And I am offering anybody who is listening who would like a free copy of Michael’s book. I will be more than happy to get that to you. It’s a great educational piece. If you’re considering Florida or you got half of you in Florida and you’re thinking about getting more of you in Florida. So you avoid the state income tax. It’s a great read. And you could just reach out to me. Ask steve@CFNPlan.com more than happy to get that to you. Ask Steve@CFNPlan.com or you give me a call two one five five six nine. One, two, three, four. Let’s talk estate planning. End of life matters where being in Florida vs. New Jersey or New York or California. Share with us what benefits are there and maybe what pitfalls, if any, might be there.

Sure. Several estate planning advantages in the state of Florida compared to other states. One of them I mentioned earlier is that you can set up a trust and I recommend that virtually everybody have a revokable living trust rather than having a will. Actually, your trust access to will, because what you can do is pass assets on and eliminate probate, which is a big deal. But probate is not too bad in Florida. But why have any probate when why you know, your spouse is suffering a family, suffering your loved ones are suffering, you’re dead. And they want to be they’d like to have things be simple, but having a revokable living trust, particularly one that protects them, because when we leave things in trust for family members, we should leave it so that we stay in trust. Perhaps having each family member that Julie thinks to be their own trustee of her own separate share. And under Florida law, they can be their own individual, separate trustee. And the benefits are that they’re free for the claims of creditors, free from predators, free from the problems of divorce, because they just say, well, wait a minute, they’re a wrong trustee. Shouldn’t the divorce spouse be able to reach in and get what they want out of that? The answer is no, because it’s a it’s a fact. It’s a trust that was set up by that person’s parent or parents. And so essentially protections there. And there’s other additional. Well, here’s a couple. No state give tax. He said no. But in an abundance of the estate planning professions, we have an amazing number of board certified attorneys and they in our neck of the woods, Naples, Florida. No state income tax on trust income. So if you have a trust that’s collecting income, normally if you pay it out. But if they are collecting income, there’s no state is tax on that. No state tax, faster probate process and lower costs. So you have to go through probate. You’re better off in Florida than not being in a northern state. And there’s asset protection that I mentioned, which is a good thing. But it’s also built into the type of plan that you put together. So I highly recommend that people sit down with Florida attorney. Maybe adjust their current documents to reflect Florida or update them, because the loss of troops is such that any any plans are outdated and have huge holes. So I sit down with people and I go over that return, teach them how to improve their plan and build it. Didn’t make it a Florida plan.

And there’s a big difference. Right. So you need somebody who is familiar and educated in these twists and turns because the higher tax states, in my opinion, are going to get as aggressive as they can get, trying to get what they believe is theirs and go after people. So we really appreciate your time. Michael, your book is fantastic. It’s Michael Colborne. He is coauthor of Florida Domicile Book, and he’s president of Colborne Associates. He’s in Naples, Florida, a leading national authority on estate tax matters, an expert on the complexities of Florida domicile. Michael, we now, in the expansion of crude ESCO financial network have expanded into Florida by demand from our clients. Many of our clients who have tested Florida as sort of a vacation place to go. They would maybe have a condo there or keep a pillow there and some of their clothes and they would zip back and forth. But it wasn’t their primary residence. Many of them now have decided to make it their primary residence. And this is something that they’re asking us. You know, can we meet in Florida? Do you have an office in Florida? Because having your professionals, as you said, your team of professionals, your lawyers, your doctors, your Dennis, your insurance people, your financial people, if you meet in Florida, it’s one more box. You check that you are living your best life in Florida, Florida, domicile, dot com.

We’ll get up a book or they can go to our Colbourne Associates dot com and is spelled k. L isn’t boy. Oh, you are an associate spelled out plural dot com. So keyboard associates dot com can put him in touch with me. Glad to talk to him.

Or they can go to the Florida domicile handbook dot com and we have opened an office in Naples on Fifth Avenue so we won’t be far from you and great. I have an expert right there in our own backyard and we are getting close to something up in the Stewart area between Stewart and Boca as well as outside of Orlando. In somewhat of an expansion that kind of came a lot faster due to Kofod than. Right. He thought it would. Our three year plan went to three months, it looks like. And as we expand out into more of the western Pennsylvania suburbs, and obviously we handle a lot of folks in New Jersey and we have offices in Haddonfield as well as Morristown, looks like it’s going to be be next on the list. But, boy, I tell you, down in Florida, there is just so many of those that we help navigate their life and wealth asking about Florida. So I’m so glad you were able to be here and be an asset to everyone and wrote this great book that I think will help many avoid a lot of taxes over their time that they spend in the state of Florida. Michael, thank you so much. Really appreciate it. I’m Steve Cordasco. Thanks for listening to the Your Life, your well show. And if you want a book, Michael just told you how to get the book. You can also reach out to us and we’ll send you copies as well. It’s a must read. Trust me on this one. If you like me, I hopped on a flight down to Florida and by the time I touched down, I was a good portion through it because it was just it was just good stuff.

Good facts. And we’re always open for topics that you want to talk about. Just like so many of you and asked for this topic. So feel free to send them to me. Ask steve@CFNPlan.com. Have a great week. Thanks for being part of the Your Life Your Wealth podcast.

If you’re interested in learning more about applying the principles we discussed to your personal financial circumstances, please visit Cordasco Financial Network at CFNPlan.com