Daniel Martinez associate with Stroock & Stroock & Lavan.

Recently, a high-profile person announced a change of his permanent residency from New York to Florida on Twitter. For most people, however, a Twitter announcement is insufficient, and more concrete steps are required.

New York and Florida Taxation

The decision to move one's residency is always a personal one, and should be driven primarily by personal and family considerations. However, relocation to Florida is a popular destination for former New Yorkers that offers them warmer climate and some compelling tax benefits.

• Personal Income Taxation

New York resident taxpayers pay tax on income from all sources regardless of where the income is generated. On the other hand, nonresident taxpayers only pay tax on income that is generated in New York. New York's tax rate goes up to 8.82% for incomes over $2,155,350 for married filing joint returns, with some cities imposing additional tax on top.

New York taxation became even more burdensome after the tax law changes in late 2017 limited the federal deduction for state and local taxes paid. New Yorkers can no longer deduct all of their New York state and local income taxes on their federal return.

In contrast, Florida does not impose any tax on personal income of its residents.

• Estate Taxation

New York imposes an estate tax on the New York taxable estate of a deceased individual. For New York residents, the taxable estate includes all of their property other than real and tangible personal property outside of New York. In contrast, for nonresidents of New York the taxable estate is generally limited only to real and tangible personal property located in New York. Currently, the highest marginal estate tax rate in New York is 16%.

New York provides an estate tax exemption amount of $5,740,000 in 2019, and indexes the exemption for inflation. However, this exemption amount can be illusory for wealthy New Yorkers because it is phased out quickly if the decedent's estate exceeds the exemption amount, and is eliminated entirely if the decedent's estate exceeds 105% of the exemption amount.

In contrast, Florida currently does not impose any estate, inheritance or gift tax on its residents.

• Other Considerations

Florida law provides generous asset protection benefits for principal residence, retirement accounts, annuities, and certain life insurance policies, which are generally protected from creditors, regardless of their value.

New York Residence

Determination of New York residency for income tax purposes is a very fact-intensive inquiry that depends on many subjective and hard-to-prove factors. A person's intent to abandon his New York residence and establish a home somewhere else plays the most important role, but that intent must be shown by some overt acts. Although many taxpayers take customary steps to prove that they have become nonresidents (obtain a new driver's license, register to vote, register automobiles, join social clubs, file an affidavit of domicile in the new state), the New York tax rules describe these actions as "self-serving" that are entitled to less weight than factors that affect the way taxpayers live their lives.

In order to not be considered a New York resident for income tax purposes, the person has to fall into one of four categories:

• The person is domiciled outside of New York, and does not maintain a permanent place of abode in New York;
• The person is domiciled outside of New York, maintains a permanent place of abode in New York, but spends no more than 183 days in New York;
• The person is domiciled in New York, but spends no more than 30 days in New York, does not maintain a permanent place of abode in New York, and maintains a permanent place of abode outside of New York; or
• The person is present in a foreign country for at least 450 days out of any period of 548 days, and such person and his family have a very limited presence in New York.

Accordingly, the three main variables are the location of one's domicile, location of one's permanent place abode and days of presence in New York. Although the "days present" is a relatively objective determination, the other two factors are very subjective. To further complicate matters, these three variables are not independent of each other, but rather they are interdependent. For example, the number of days spent in New York, and the location of permanent place of abode are also used as factors to determine domicile.

Domicile is defined as "the place which an individual intends to be such individual's permanent home—the place to which such individual intends to return whenever such individual may be absent." There are five primary factors in determining one's domicile that are considered before any other factors: location of one's home, active business involvement, time spent in New York, items "near and dear," and family connections. If these primary factors are inconclusive, then the New York tax authorities will look at everything else.

The distinction between one's domicile and one's permanent place of abode can be elusive at times. In most cases, having a domicile in one place will require one to have a permanent place of abode in the same place. However, one can have multiple permanent places of abode, but there can be only one domicile at any given time.

Conclusion

With careful planning, it is possible to relinquish one's New York tax residence and establish residence in Florida. It is important to establish one's domicile and permanent place of abode in Florida, as well as spending a significant amount of time in Florida. However, for most people it is difficult to suddenly cut all economic and social ties to New York. Therefore, it is recommended to seek advice of an experienced tax professional who can guide you through the minefield of rules and regulations. Additionally, a person moving to Florida should update his estate planning document to address Florida rules regarding homestead protection, spousal elective share, and selection of executors or personal representatives.

Daniel Martinez is a tax associate with Stroock & Stroock & Lavan in Miami.