Florida Inheritance/Estate Issues

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Florida Inheritance/Estate Issues

Postby jamesdz » Fri Dec 28, 2012 10:05 am

Dear Bogleheads,
Despite all of the warnings about high humidity & hurricane threats, decided to take the plunge & am in the process of purchasing a home in Northeast FL.
Wife & I are both 70......wife refuses to move to FL at this time, so the plan is to have agent manage renting the home
until my wife changes her mind.....either before or after my passing. A few more nasty winters & I think that spouse may
reconsider her position since we have limited family/friends remaining in the area.
Prime motivation for my action is (a) escape from Winter (when wife is willing), (b) secure home while prices are still reasonable, (c) plan for potential physical decline....switch from 2 story to 1 story home (no steps) with no grass to cut or shrubs to maintain, (d) escape from NJ State Estate Tax for my son's benefit (if the last one of us can manage to die in FL).
If necessary we have sufficient retirement income to carry the FL home without rental income &, if really uncomfortable
with this prospect, can always pull the plug & sell the NJ home for a modest capital gain. Also like the idea that we can
claim some federal tax deductions on a rental property....i.e. depreciation, etc., etc.

Would like to solicit comments from group on things to consider with regard to our planning when we actually make the
eventual move to Florida.
Things on my mind................
a) keep hearing about "punishing" legal costs involved in probating a will in Florida (tips to make this easier) ?
b) have been warned NOT to establish FL residency BEFORE home in NJ is sold due to so called "NJ Exit Tax" which is reportedly in the neighborhood of 5% of NJ home sale value.

PLEASE......I am NOT looking for legal advice......will certainly secure a FL attorney/CPA for tax & estate planning guidance
before any move to FL is actually made.
Just looking for some practical advice from Boggleheads that have gone through a similar experience & are willing to discuss.

Hoping that this posting does not get LOCKED by site administrator.....hence comment that I am NOT seeking legal advise.

Thank you for any input members can provide.

jamesdz
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Re: Florida Inheritance/Estate Issues

Postby Calm Man » Fri Dec 28, 2012 11:05 am

James,
Your wife does not want to move to Florida. That is understandable. I understand your desire to escape the NJ estate tax but unless you have assets in the tens of millions, the cost of buying a house in Florida to sit unoccupied would likely outweigh this. (Many of us in NJ go through these thoughts -- I for one have decided that I could not deal with the heat down there and am staying put.) It sounds like you are buying this house with the possibility of never moving into it but hoping that the last one of you to die is a Florida resident at the time in order to escape NJ estate taxes. That does not seem like a really good reason to me but am I missing something?
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Re: Florida Inheritance/Estate Issues

Postby rec7 » Fri Dec 28, 2012 12:02 pm

If it were me I would sell the house in NJ before buying in FL but I am very conservative. Plus the cost of running two houses is a killer. Sounds like a talk with the wife would be a lot better than a talk with a realtor. I understand about the tax savings put you need all the shipmates on the ship before it leaves port.
Last edited by rec7 on Fri Dec 28, 2012 12:34 pm, edited 1 time in total.
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Re: Florida Inheritance/Estate Issues

Postby JDCPAEsq » Fri Dec 28, 2012 12:20 pm

I've been involved with the administration of Florida estates for over 35 years, and have never heard of the "punishing" costs in administering a Florida estate. Most attorneys charge on an hourly basis whether there is a probate administration or not. I suspect some of that talk may come from New Jersey attorneys not anxious for you to die as a resident of Florida. Florida has no estate tax other than the credit allowed on the Federal return and, with proper planning, estate administration costs can be minimized. Rest easy on that score. Whether your plan makes sense otherwise I'll leave to others.
John
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Re: Florida Inheritance/Estate Issues

Postby bsteiner » Fri Dec 28, 2012 1:01 pm

I live in NJ, my office is in NY, and I'm admitted in NY, NJ and FL, so I don't stand to benefit whether a client is a NY, NJ or FL resident. I've assisted many clients in moving to FL from NY, NJ, or some other northern state. Florida has no income tax. Florida used to have an intangible personal property tax, but it repealed that a while ago.

The Florida estate tax is limited to the Federal credit for state estate taxes. Before 2005, when there was a Federal credit for state estate taxes, there was a Florida estate tax, but it was fully credited against the Federal estate tax, so the cost was borne by the Federal government, not the estate. The 2001 Act phased out the Federal credit for state death taxes, so Florida presently has no estate tax. New Jersey decoupled from the Federal changes in the 2001 Act, so New Jersey has an estate tax as if the decedent died in 2001. Under current law, state estate taxes are a deduction (rather than a credit) against the Federal estate tax.

The 2001 Act changes are scheduled to expire at the end of this year. If Congress does nothing, the Federal credit for state death taxes will return in 2013. At that point, FL's estate tax will return, but it will be fully credited against the Federal estate tax, so it won't cost the estate anything. The result will be that in the top bracket, the estate tax in almost every state, including FL, will be 55%, consisting of 39% Federal (55% less 16% credit for state estate taxes) and 16% state.

The Adminstration has proposed a 45% estate tax rate, with state estate taxes a deduction rather than a credit. That was the law in 2009. If that's enacted, the estate tax in the top bracket in FL will be 45% Federal and 0% FL. In NY or NY, it will be 53.8%, consisting of 37.8% Federal (45% less the benefit of the deduction of the state estate tax) and 16% state.

Probating a Will in NJ is by far the simplest of any state of which I'm aware. In most cases, the clerks at the court will fill out the forms for you.

Probating a Will in FL is not particularly difficult, expensive or burdensome. We probate Wills in Florida on a regular basis by mail from our office in NY. We send in the original Will by FedEx so it can be tracked. Don't pay attention to the people in Florida trying to sell living trusts. While they're occasionally appropriate, for at least 90% of our clients they're unnecessary. The principal exception is that since Florida requires that the personal representive be a relative or a Florida resident, someone whose first choice is neither a relative nor a Florida resident has to either select someone else, or create a revocable trust (or, occasionally, have the Will probated in another state).

Florida has a statutory schedule of presumed reasonable attorneys' fees for an estate. It's about 3% on smaller estates, less on larger estates. Some lawyers in Florida use that schedule. We, and many others, handle estates on a time basis. It usually comes out to much less than the statutory schedule. However, occasionally a small estate can be complicated, in which case it may cost more on a time basis.

In any event, probating a Will is a very small portion of the estate administration. Most of the legal work involves ascertaining the assets, obtaining appraisals, dealing with the assets, preparing the estate tax returns, disclaimers (if any), planning for retirement benefits, dealing with business assets, updating the beneficiaries' planning (not actually part of the estate administration but often done at the same time), fiduciary income tax planning, etc.

If a nonresident sells real estate in New Jersey, there is a required New Jersey income tax withholding. Like any other withholding, it's just to make sure the taxpayer files a return and pays the tax. In most if not all states that have an income tax, a nonresident is taxable on the gain on the sale of real estate in that state, in the same way that I'm taxable in New York on the income I earn in New York, even though I live in New Jersey. When you file your New Jersey income tax return, you'll take a credit for the tax withheld against the tax on the return, and if you paid in more than the actual tax, you'll get a refund. It's no different from someone who has income taxes withheld from his/her salary.
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Re: Florida Inheritance/Estate Issues

Postby jamesdz » Fri Dec 28, 2012 8:46 pm

Thanks to all Bogleheads responding to date.....found the detailed information supplied by "bsteiner" to be particularly
illuminating.......thanks again "bsteiner" !
As an aside.....believe that the home in NJ will qualify for K$500 exemption from NJ Capital Gains Tax if "during the 5-year period ending on the date of the sale we have lived in the NJ home for at least 2 years & lived in the NJ home as our principal residence for at least 2 years". We have lived in our NJ home for 38 years this coming April.

With regard to the actual decision to purchase now without agreeing on an immediate move now..............
I much prefer the Florida heat, humidity & sunshine to the cold & dampness of the Northeast Winter & early Spring so long as A/C & a swimming pool are available.....my wife always complains that we should live in a warmer climate by March/April every year.....so she may come around if we have a few particularly bad winters. In addition, we will be buying in Northeast FL - not the sub-tropical climate of Fort Lauderdale & points South. Home is located about a 15 minute drive to the beach,,,,but far enough away to, hopefully, not be slammed too directly by a hurricane (one never knows, of course...look at the Jersey Shore & Hurricane Sandy). We are both still fit & should still have some time to enjoy the 12 month/year outdoor life in FL.

The price of homes in the area of Florida that I have selected are moving up gradually & we will be purchasing a recently built home offered as a Short Sale. The home currently is being rented with a calculated positive cash flow although no
assurance that the tenants will remain. A few similar homes in the same development are being rented as well.This is the one gamble that I am taking......however, have calculated that I can comfortably carry the home ,even without the rental income, if needed.

Assuming that we do not make any serious financial mistakes, I am estimating that my son will be looking at inheriting
something in the neighborhood of 4 to 5 million dollars. If the Feds really do allow a M$3.5 estate tax exemption, we should be able to cover M$7 with either portability or an AB Trust. Of course, with the Fiscal Cliff fiasco.....who knows what
Washington will do to us all !?! Assuming the federal issue is resolved, do I really want my son to have to pay a significant
NJ State Estate Tax (~K$200-K$300) when my wife & I have passed ?!? Is my wife willing to put this tax penalty on our son by insisting on dying in NJ if I am the first to pass ?!?

After procrasting on this matter for the past two years & allowing at least one significant home buying opportuntiy to slip by, just decided to take action now while my body & brain are still reasonably intact.
If we don't actualy make it to FL, perhaps my son will ultimately benefit from the investment.

Again...thanks to all !

james dz
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Re: Florida Inheritance/Estate Issues

Postby Sam I Am » Fri Dec 28, 2012 9:08 pm

Message deleted.
Last edited by Sam I Am on Sun Oct 06, 2013 3:42 pm, edited 1 time in total.
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Buying rental property in Florida ?

Postby Taylor Larimore » Fri Dec 28, 2012 9:31 pm

James:

I am 88 and live in Florida. My wife was a realtor and we were both real estate residential investors so I can relate.

As a retiree, I doubt if I would ever consider buying a second home in another state with a "wife that refuses to move to FL." Retirement is the time to start simplifying--not making our lives more difficult and complex.

I wish you good luck with whatever you decide.

Happy Holidays!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Florida Inheritance/Estate Issues

Postby statman » Fri Dec 28, 2012 10:21 pm

I suggest renting for (say) a winter before deciding to buy or not. My wife was dubious about winters in Florida, having visited my parents in the Daytona Beach area and finding it a cultural desert. I chose Sarasota, a cultural hot spot. We rented a nice condo. After three weeks, my wife agreed that winters in Florida were a good idea, and we then started looking. Bought a beachfront condo 10 years ago, divide our time: "Never be in Indiana in February, never be in Florida in hurricane season" is our motto. If we had to choose one full-time location, I would choose Florida and she would choose Indiana. If you can afford it, two homes is ideal, and a condo takes essentially no off-season worry.
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Re: Florida Inheritance/Estate Issues

Postby abuss368 » Fri Dec 28, 2012 11:41 pm

statman wrote:I suggest renting for (say) a winter before deciding to buy or not. My wife was dubious about winters in Florida, having visited my parents in the Daytona Beach area and finding it a cultural desert. I chose Sarasota, a cultural hot spot. We rented a nice condo. After three weeks, my wife agreed that winters in Florida were a good idea, and we then started looking. Bought a beachfront condo 10 years ago, divide our time: "Never be in Indiana in February, never be in Florida in hurricane season" is our motto. If we had to choose one full-time location, I would choose Florida and she would choose Indiana. If you can afford it, two homes is ideal, and a condo takes essentially no off-season worry.



Love Siesta Key Sarasota and have been there many times. Really considering retiring there one day.
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