Wealthy individuals have been flocking to Florida for years. According to the website howmoneywalks.com, from 1992 to 2016, the IRS Division of Statistics, U.S. Census Bureau reported Florida gained $27 billion in taxable income from New York, $18 billion from New Jersey, $13 billion from Illinois and $11 billion from Connecticut and Pennsylvania, respectively. Individuals from Rhode Island have brought $1.72 billion in taxable income from the Ocean State. And this doesn’t include the dollars newcomers bring that aren’t taxed. Individuals will continue to relocate to the Sunshine State, perhaps even at a greater pace, because of the Tax Cuts and Jobs Act (TCJA) passed by Congress last year and the favorable income and transfer tax environment Floridians enjoy.
The TCJA made several significant changes to the individual (and business) income tax. The TCJA modifies or eliminates most itemized deductions for individuals. Perhaps the most significant limitation is the cap on the amount deductible for state and local taxes (comprised of income, real estate and sales taxes) at $10,000 per year. This hurts high income earners in high-tax states. Governors in high-tax states are understandably concerned about the caps impact on home prices, job creation and economic growth in their states. This past July, a lawsuit by New York, Connecticut, Maryland and New Jersey was filed against the federal government to void the $10,000 cap. Commentators have suggested the suit is not likely to succeed. As individuals from high-tax states prepare their 2018 personal income tax returns and realize higher taxes, resulting in part from the cap on state and local taxes, many may be seeking to move to a low-tax state.
So, what’s so great about Florida? It’s not just the weather. Florida has no personal income tax, no capital gains tax, no state gift tax, and no state estate or inheritance tax. Professionals and retirees flock to Florida because of the favorable tax environment but there are additional benefits to being domiciled in the Sunshine State. For example, Floridians enjoy asset protection in the form of strong state laws that exempt their homestead, retirement assets, insurance, and certain spousal joint property from being used to satisfy a creditor’s judgment against an individual.
Further, Florida permits individuals to set up long-term trusts to benefit multiple generations for up to 360 years without federal transfer tax. These trusts can be structured to include a spouse as a beneficiary and they may be funded with any type of asset, including life insurance. The creators (and beneficiaries) of these trusts can rest assured that the assets in the trust are protected from divorcing spouses, business creditors and personal injury plaintiffs.
After the passing of the TCJA, individuals who were already looking to leave high-tax states for lower-tax states could be persuaded to take the plunge and relocate. Others will likely follow suit and states such as Florida will continue to benefit from the income and dollars that follow. Given the significant changes to the tax law resulting from the TCJA, individuals should talk to their advisors to ensure they are doing all they can to minimize taxes and protect and plan for their loved ones, regardless of whether they are considering relocation or not.
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