By Mark R. Brown & Christopher C. Weeg
The article appears in the PBCEPC 2023-24 Estate Planning Supplement
In the past few years, the migration to Florida has accelerated, particularly among those with high net worths. Florida has a long history of attracting new residents with the allure of no income taxes, no estate taxes, and favorable asset protection laws. While the benefits of living in Florida are well known, this article will discuss a few lesser-known traps posed by a move to Florida.
Trap 1. Property Tax Surprise Most people are familiar with the property tax break on a Florida resident’s primary residence, known as “homestead.” The homestead exemption benefit is two-fold: (1) generally, there is a $50,000 reduction in the “assessed value” of your home for property tax purposes, and (2) perhaps more importantly, the “Save Our Homes Cap”, which limits annual increases on the assessed value of your home to the lesser of3% or the change in the Consumer Price Index.
In some cases, applying for the homestead exemption can lead to an unexpected increase in your property tax bill. Another tax benefit caps the increase in property taxes on non-homestead real estate at 10% of the assessed value per year. However, when you apply for the homestead exemption, your home’s assessed value for the initial year will be increased to its “appraised value”- i.e., the home’s value without the benefit of the 10% cap – thereby giving up the accrued 10% cap benefit built up over the years of ownership prior to filing for homestead. Given the incredible appreciation in real estate prices, the loss of the 10% cap to obtain the homestead exemption cap can be substantial. As a result, some clients are delaying homestead applications to defer this reset; however, delaying a homestead application could impact your domicile case.
This property tax trap caught the attention of the Palm Beach Post. On August 4, 2023, The Post ran an article entitled “Why one woman’s nightmarish tax bill doubled overnight and can she do anything about it?” The article details how a new Florida resident’s application for homestead triggered a loss of her 10% cap, resulting in her property taxes increasing from approximately $24,000 to over $51,000. The lesson of the article is that proper planning must be undertaken before transferring Florida real estate or even applying for homestead.
Trap 2. Inability to Give Away Your Homestead
Once again, the Florida homestead is in the spotlight for another trap. Homestead laws have numerous positive features, including strong asset protection against creditors (and in some cases, people move to Florida specifically for this reason). One of the policies behind the homestead asset protection benefit is to protect surviving spouses and minor children from being thrown out of their home by a creditor of the decedent. To further the foregoing policy, it can come as a surprise to many that they cannot freely give away their homestead on death if they are survived by a spouse or minor children. While it is possible to plan around these rules by either owning the homestead with your spouse as tenants by the entirety or using a homestead waiver in a marital agreement, a waiver is not possible if you have a minor child.
In many cases, especially with new Florida residents who have not updated their estate planning documents, the existing estate plan gives the residence to a trust for the benefit of the surviving spouse, but this bequest will fail. In addition, if the homestead is owned in one spouse’s name alone or in a revocable trust, it must be specifically devised outright to the surviving spouse. It is extremely important to check how your homestead is owned and disposed of under your estate plan.
Trap 3. It’s More Difficult to Avoid Will Contests
Florida is the only state that does not permit some form of no-contest clause in a will. A no-contest clause typically provides that a beneficiary who contests an estate plan will lose his or her interest in the estate. No-contest clauses, therefore, make contesting an estate plan more difficult. If clients are genuinely concerned about will contests, they may be surprised to learn that their existing no-contest clauses may no longer be valid upon becoming a Florida resident. Techniques can be used to make it more difficult or unattractive to contest, such as a series of wills, charging a beneficiary’s share with legal fees resulting from the beneficiary’s contest, or attempting to adopt another state’s law, but they may not be effective and are largely untested.
Florida law and taxes are extremely attractive and one of the reasons people continue to relocate here. However, Florida has a strong independent streak, which is often reflected in its laws. These unique features can be traps to overcome for the uninitiated. With proper planning, these issues can often be addressed and finessed.