Do you save on taxes in the Sun Belt?

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What's Involved in Estate Planning?

The Real Price of a Sun Belt Move

Fidelity has issued a new analysis of “The cost of living in the Sun Belt.” Ther data shows that for the roughly 300,000 retirement-age Americans relocating to the Sun Belt each year, the savings they are counting on may not exist. Those thinking of relocating should talk to their tax adviser before they sign the moving contract.

 

Fidelity compared 12 Sun Belt states — Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, South Carolina, Tennessee and Texas — using four categories that create the true cost of relocation: state income tax, property tax, homeowners and auto insurance, and home prices. The results should encourage potential relocators to do the math for themselves.

 

Looking at Florida and Texas, the two states most often touted as tax havens, ranked worst on combined insurance costs. Florida’s average combined homeowners and auto premium insurance add up to around $9,550, the highest in the Sun Belt. While in Texas property taxes average 1.47% of assessed value, roughly double the national median. Tennessee has “no wage” income tax and low property taxes but makes it back in combined state and local sales taxes that routinely exceed 9.5%, among the highest in the country.

Considering a Move to the Sun Belt

If you were considering a move to save money in taxes, take the time to review the following conditions:

  • Run a five-year, landed-cost model covering income tax, property tax, insurance, sales tax and the cost of maintaining any retained residence in the old state.
  • Build your domicile file contemporaneously: use day-count log, near-and-dear items, professional relationships, voter and vehicle registration, will and trust governing law. Your domicile is your one true permanent home: the place you consider your fixed base and intend to return to whenever you’re away. You can maintain several residences at once, but you can only hold one domicile at a time.
  • Address source income Learn what counts as income under the law, how different sources are taxed, and how lenders and landlords evaluate your earnings when making decisions. Accelerate, defer or restructure before the move, not after, especially for deferred comp and equity.
  • Review your estate plan against the new state’s probate, homestead, community property and elective share regimes. Arizona, Louisiana, Nevada, New Mexico and Texas are community property jurisdictions. That changes basis planning, creditor protection and trust funding.
  • Coordinate trust situs, trustee residency and funding with the new domicile so you can actually receive the income tax savings.
  • Assume a residency audit from the departing state in year one after you move especially if you are above the high-earner threshold.

 

This analysis by Fidelity’s enlightens potential relocators to the considerations they should ponder before the moving van is booked. Keep in mind that “Tax-free” is just a slogan. Zero-income-tax states fund themselves somehow, don’t get surprised by their funding mechanisms after your move. Talk to a tax adviser if you have questions, contact us at (312) 578-9300 or info@madonia.com with questions.