In prior Cox & Nici emails, we have discussed the benefits of making Florida your permanent residence or "domicile." Florida is well known for being a "tax advantageous" state. Florida does not have a personal income tax, nor a state death tax. Further, as of recently, Florida no longer has an intangible tax. Instead, Florida generates most of its revenue from tourism, luxury fee based taxes, property taxes and sales taxes (all of which are still relatively low in comparison to all other states). The key is in the volume of taxpayers, especially with respect to tourism. This means lower overall taxes for Florida residents.

Northern states rely on these other taxes (and fees) for their revenue. Also, until recently, all states benefited from estate tax revenue generated at the Federal level. When the Tax Relief Act of 2001 was enacted, the federal government took away the states revenue stream collected from federal estate taxes (this was phased in over time through 2005). Now that the revenue stream from the federal estate tax is gone completely, some northern states are fighting back through changes in their tax laws that cause those who would have escaped tax before to now be exposed to tax. This is especially true regarding state death taxes and its application to non-residents.

Some states such as Connecticut even impose “probate fees” that look more like estate taxes when a person dies owning property in Connecticut. This is true even if the property is owned in such traditional probate avoidance ownership devices such as Revocable Living Trusts. The Connecticut Probate Court is a separate and distinct jurisdiction from all other courts in the State. It is run independently and can set its own fees. These probate fees can reach as high as five figures and are based on the value of the decedent’s property and overall estate (yes, even the portion not located in Connecticut). Other states are following suit through other forms of revenue generation.

If you were considering holding on to that second home up north, you may want to reconsider or at least carefully consider how that residence is titled. Certain forms of ownership may be better than others in avoidance of state estate taxes and probate.