Cold and Taxed!
Domiciling in Florida or another warmer climate can improve your tax situation and your tan. Just make sure you know the rules well before packing your bags.
- Illinois weather is not kind to residents in winter, and the state of Illinois is not kind to residents who pass away within its borders—at any time of year.
- If you have property in Florida, Texas, Nevada or other states without a “death tax,” consider making that state your domicile.
- Many tax-friendly states are in warmer climates, but estate tax rates and the rules about domiciling are complicated. Don’t make a move without seeking expert counsel first.
*** See my video interview with Rob O’Dell for more on Florida domiciling
It’s January here in Chicago, Illinois. It’s darn cold, and you’re probably thinking about going someplace warm, such as Florida. Going south not only gives you balmier weather this time of year, but living there on a more permanent basis can help your tax liability as much as it does your tan. As many of you know, Florida has no state income tax. Neither does Texas or Nevada. Those states also have no “death tax”—that’s the tax some states levy on residents’ estates when they die.
Unfortunately, Illinois is one of 15 states (and the District of Columbia) that tax your estate when you die, and the Illinois exemption threshold ($4 million) is lower than it is for many other states. That means Illinois takes even more of your wealth when you die than most other states do.
Avoiding the death tax
So if you have an estate worth over $4 million (single) or $8 million (married couple), it probably makes sense to start looking at tax mitigation strategies. However, you have to go to the Illinois Attorney General’s website to figure out your tax because it’s so complicated. As an example, if you’re an Illinois resident with a $5 million estate, you (and your heirs) would owe $285,000 in state estate taxes. That’s a pretty big number. If you have a property in one of the warmer states without a state death tax, you might want to consider making that state your domicile.
Last year I interviewed Rob O’Dell, who is now a partner at our firm, about domiciling in the state of Florida. Take a look at the video of that interview if you’re considering domiciling in Florida. The key is that if you’re in the state of Illinois and you’re domiciled here, you have two sets of taxes to be concerned with—the state income tax and also the state estate death tax. Wouldn’t it be nice to avoid that financial hit? However, before packing your bags, I urge you to seek tax counsel or another advisor to help you minimize those taxes on your estate. Again, if you’re considering domiciling outside of Illinois, then take a look at our video or text post on this topic. Until next time, enjoy.
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