February 7, 2023

Volume XIII, Number 38


February 06, 2023

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Thinking of Establishing Florida Residency? What to Consider Before Changing Your Legal Residence

Many clients whose family circumstances and employment situation permit them to spend in excess of six months every year in Florida may elect to become Florida residents. The biggest advantage, compared to being Michigan residents, is that Florida has no state income tax. So-called earned income, such as salaries, will continue to be taxed in the state in which they are earned, but “unearned” income such as dividends, interest, rents and retirement benefits will not be subject to state income tax if the recipient is a Florida resident.

Property and Local Tax Considerations

The biggest perceived disadvantage to changing legal residence to Florida is that Michigan and Florida only permit residents to claim a homestead exemption, so a change in residence to Florida results in loss of the Michigan homestead exemption (referred to as the “Principal Residence Exemption” or “PRE” in Michigan); accordingly, a change in residence from Michigan to Florida results in the loss of the Michigan PRE. The PRE exempts your principal residence from the local school district tax of up to 18 mills. Mills are the taxes per each $1,000 of assessed value of your home. Therefore, if the assessed value of your Michigan residence is $300,000 (i.e. an assumed fair market value of approximately $600,000) and your local school millage is the maximum of 18 mills, the principal residence exemption would save you $5,400 annually in property taxes.

It should be noted that changing your residence and rescinding your PRE does not result in a reassessment of the taxable value of your Michigan property (“uncapping”) as long as you continue to own it. If you have owned your Michigan home long enough to have an artificially low real estate tax value (i.e. the cap on annual reassessment of your home’s value on which your property taxes are based means that your taxable property value is lower than it would otherwise be if reassessed annually), that cap on reassessment of the taxable value will not change. The PRE only relates to the local school district tax, so rescinding your PRE only means that you lose the ability to avoid the local school district tax.

Planning for the Homestead Exemption

There are numerous steps you should take even if you are changing your residence for income tax purposes and do not have a Florida residence that qualifies for the Florida homestead exemption. Be aware, however, that if you become a Florida resident you will lose your PRE in Michigan even if you do not claim a homestead exemption in Florida. You cannot elect to preserve a more valuable Michigan exemption by simply forgoing a claim of homestead exemption in Florida. 

Before turning to the rather intricate steps involved in claiming a homestead exemption in Florida, you should plan to:

  • File a Declaration of Domicile provided by the County Clerk of the county to which you are moving. Each county generally makes the form available on its website.

  • Rescind your personal residence exemption in the Michigan county you formerly claimed as your residence.

  • Register to vote in your new Florida county.

  • File your tax returns with the IRS Service Center in Atlanta as a Florida resident. Remember to file a Michigan return as a partial year resident if you change your residence mid-year or as a non-resident if you continue to have earned income in Michigan.

  • If you plan to apply for a driver’s license in Florida, you should do so within 30 days of filing your Declaration of Domicile. You should also be sure to register your vehicles and insure them with a company doing business in Florida within 10 days of establishing residency.

  • Consider making other less critical changes like updating the address on your passport, maintaining a Florida bank account and using your Florida address on your credit cards.

Reviewing Your Existing Estate Plan

In addition to these important recommendations, nearly every Florida attorney who addresses the topic of changing your residence suggests reviewing your existing estate plan. While an estate plan that is valid where it was signed is valid anywhere, Florida has specific requirements that may warrant an update. For example, Florida law is stringent with regard to who may serve as the personal representative of a decedent’s estate. The personal representative must be one of the following: a Florida resident, certain non-resident family members or entities qualified to do business in Florida.

Additionally, all powers of attorney are given immediate effect in Florida; Florida does not permit springing powers of attorney that are only effective upon incapacity. Florida law does not recognize handwritten or “holographic” wills. Florida does not recognize no-contest or “in terrorem” clauses, the clause stating someone contesting a decedent’s will or trust receives nothing pursuant to the will or trust as a result of their legal challenge. Finally, you may need to incorporate language in your trust to qualify for Florida’s homestead exemption, whereas special language is not required to obtain Michigan’s PRE.  

© 2023 Varnum LLPNational Law Review, Volume XII, Number 75

About this Author

Steven J. Adamczyk Partner Varnum LLP

Steve focuses his practice on residential and commercial real estate transactions and community association representation. He provides counsel to condominium and homeowners associations throughout Florida. Steve has extensive experience in corporate governance, compliance, insurance, risk management and contract negotiation matters and also provides estate and trust planning services.

Linsey Aten Gleason, Varnum Law, Estate Planning Attorney, Guardianship Matters Lawyer

Linsey is a partner in the Estate Planning Practice Team. Her practice includes full-service estate plan preparation, estate and trust administration, guardianship and conservatorship services, elder law advice and special needs trusts. Linsey is licensed to practice law in Michigan and Florida. She is currently serving as Chair of the Probate and Estate Planning section of the Grand Rapids Bar Association and is the Past President of the Women Lawyer’s Association of Michigan – Western Region.

Laura E. Radle, estate planning attorney, Varnum

Laura is an attorney in the firm’s estate planning team where she helps individuals and families to identify their estate planning goals and to create a plan that is tailored to meet their specific needs. Laura’s practice includes a full range of estate planning and estate settlement services including the preparation of basic or complex estate plans, tax planning, business succession planning, cottage planning, charitable gift planning, and estate and trust administration services.

As a member of the Family Business Team, Laura assists business owners with the...

Fredric A. Sytsma, estate planning lawyer, Varnum

Fred is a member of the Estate Planning Practice Group. He has been assisting his clients with their estate planning needs since he first began his practice, and he has during that time handled a wide variety of estate settlements and estate settlement issues. His particular focus is on counseling clients on techniques to minimize estate and gift taxes, and drafting the documents to accomplish that objective. Fred is also a trusted personal advisor to many of the families he has worked with over the years.

Robert M. Huff Associate Varnum Estate Planning Business and Corporate

Rob is a member of the Estate Planning Practice Team. He is experienced with all facets of advanced planning techniques, with a particular focus on the intersection of business matters and personal estate planning. Rob regularly works on estate planning entities including wills, various types of trusts, powers of attorney and other documents. He also provides counsel on entity structuring, including LLCs, family limited partnerships and corporations in order to minimize estate and gift taxes as well as facilitate the efficient management and transition of family assets.

Working with...