Abandonment leads rocker to disinherit wife. That won't fly in Florida.

Rock'n’roll lost another icon on September 15 with the death of Ric Ocasek. The 75-year-old lead singer of The Cars died at his New York City townhouse from pulmonary and cardiac complications following surgery. Now, there are complications in his estate, too.

At the time of his passing Ocasek was separated but not divorced from his wife of 28 years, supermodel Paulina Porzikova. His will, signed just a month earlier, states: “I have made no provision for my wife Paulina Porzikova (“Paulina”) as we are in the process of divorcing. Even if I should die before our divorce is final … Paulina is not entitled to any elective share … because she has abandoned me.”

The word “abandonment” is key. In both New York State and in Florida, a surviving spouse is entitled to a one-third elective share of the deceased spouse’s estate. But while abandonment can be a legally valid basis for disinheriting a spouse in New York, that's not the case in Florida.

Following Ocasek’s passing, Porzikova pushed back on the notion that she had abandoned Ocasek, despite the ongoing divorce proceedings. She heaped lavish praise on him, calling him her “sun.” She noted that she was caring for him during his recuperation, had brought him cookies the night before his death, and was the one who discovered his body the next morning when she stopped to deliver coffee. She wrote on Instagram: “We still lived together… His death is the end of my world as I knew it.” The couple has two sons together.

Estimates of Ocasek’s estate, based on a list of assets filed with his will, include $100,000 in tangible personal property, just $15,000 in cash - but over $5 million in “copyright rights.” And that does not include whatever might be in trusts that are not publicly viewable. That is ample impetus for Porzikova to file suit and to pursue her elective share. That now appears likely to happen: In November, Porizkova hired a lawyer to represent her. The “abandonment” issue will surely figure prominently as the case proceeds.    

Florida residents who plan to marry are wise to remember that Florida makes it extraordinarily difficult to disinherit a spouse. It follows that if circumstances warrant it - for example, if you have children from a prior marriage or significant assets prior to a new marriage - you should consider obtaining a pre-marital waiver of elective share. A pending divorce or even what Ocasek describes as "abandonment" has no legal significance in Florida: your spouse remains your spouse, entitled to an elective share of your estate and to certain rights to homestead property, until the marriage is legally dissolved.

From New York (or anywhere else)? How to prove Florida residency for tax purposes

Florida welcomes about 55,000 permanent transplants from New York State each year (Bloomberg 2/6/15). Besides avoiding the winter (certainly understandable given the unrelenting cold of 2015), many are seeking relief from New York income taxes, and ultimately, New York estate taxes.

But don't expect New York (or any state you're from, for that matter) to just automatically bid you bon voyage. You represent lost revenue. If New York chooses to audit you - a prospect that increases with your level of wealth - you will have to document that you really are a permanent Florida resident, not a New Yorker.

Owning property in Florida may be part of that proof, but is is not sufficient by itself. You have to do the time. That means spending at least half the year plus one day in Florida - in other words, 183 days. You don’t need to do it all in one stretch, but it must total that number. 

That said, just being away from New York for 183 days each year may not cut it, either. For example, if you spend five months in Florida, two months in California with your daughter, one month vacationing in North Carolina and four months in New York, don't be surprised if New York claims you are still a New Yorker, albeit one who just happens to travel a lot.

Your "domicile" is another, somewhat more subjective measure that is also required to prove residency. Although there are no hard and fast rules, here are some basic elements that will demonstrate to New York that Florida is your domicile:

• Purchase property in Florida, and file for your homestead exemption.

• Obtain your Florida voters registration card.

• Obtain a Florida drivers license and car registration. 

• Make sure your mailing and permanent address is your Florida address on all your bank and brokerage accounts. 

• If you still own real property in another state, have the tax bill for that property sent to your Florida address.

• File a Florida “Affidavit of Domicile.” 

• Set up your banking arrangements with a Florida bank.

• Consult with, and have medical records transferred to a Florida physician.

• Affiliate with Florida religious, civic or other organizations, rather than retaining membership in out-of-state organizations.

• If you have existing estate planning documents, consult with a Florida attorney to have them modified to conform to Florida law.  If you don’t have documents, see a Florida lawyer who will draft them for you. 

• Move the contents of your safe deposit boxes to a safe deposit box in Florida.

• Alert all the agencies and businesses that require your address, such as Social Security, credit card companies, etc., of your Florida address and have correspondence sent to that address.

Now that you are an official Florida resident, sit back and enjoy Florida's tax advantages... and the sunshine, too.

New York estate tax structure revamped effective April 1, 2014

Why is a Florida estate planning lawyer writing about New York estate taxes?  Because (1) a fair percentage of my clients hail originally from New York; (2) some of them may end up as New York residents again; and (3) New York, unlike Florida, has its own estate tax. It is one of 19 states (plus the District of Columbia) that does.

Many people do not realize that even if their estate is not subject to federal estate tax, it could be subject to state estate tax if they return to live in a state like New York that imposes its own estate tax. This is the reason our estate planning attorneys always discuss possible future relocation with clients. Most clients say they will never return to the cold, and most don't. But some do. For example, a surviving spouse may decide he/she wants to be closer to family, or the kids up north may want their parents and grandparents near them so they can be of greater assistance. Client relocation is a possibility that must be discussed because of its potential legal and tax implications.

New York State revamps its estate tax structure

So what's up with New York State's estate tax? A lot. Tired of losing residents and revenue to Florida and other states that have no estate tax, New York State has recently overhauled its estate tax guidelines. The changes are designed to incentivize retirees to remain in (or return to) the Empire State. Here are the changes in brief:

Effective April 1, 2014, New York State's estate tax exemption for an individual increased from $1,000,000 to $2,062,500. Over the next five years, the exemption will increase annually until, in 2019, it matches the federal estate tax exemption (currently $5,340,000.)  From that point forward, New York's tax exemption will align with the federal exemption. 

Here is what the New York State exemption will be through 2019:

April 1, 2015: $3,125,000

April 1, 2016: $4,187,500

April 1, 2017 through Dec. 31, 2018: $5,250,000

Jan. 1, 2019: The tax will match the federal exemption, which, indexed to inflation, is projected to be around $5,900,000.

Problems with the overhaul

Now all this may look very appealing to a New Yorker, and to a Florida resident who may be a New Yorker in the future. But dig deeper and you'll see that not all that glitters is gold!

First, New York's top estate tax rate remains unchanged at a very hefty 16%. That is high compared to other states that levy estate tax.

Second, beware the "cliff." Federal estate tax applies only to that portion of an estate that exceeds the exempted amount. But if a New Yorker passes away and leaves a taxable estate that is 5% or greater over the exempt amount, the state will tax the entire value of the estate, not just the amount that exceeds the taxable threshold. The potential disaster this "cliff" poses can be demonstrated with the following example. The exemption amount in 2017 and 2018 will be $5.25M. Let's say a decedent leaves an estate 5% over that amount -- that would be an estate valued at $5,512,500, or $262,500 above the exemption threshold. In our example, the state estate tax would be $430,050 -- creating the absurd situation in which the tax is greater than the dollar amount of the estate that exceeds the threshold. 

Third, New York's revised tax code does not include portability. A surviving spouse may not use any unused portion of the deceased spouse's exemption, as is the case with federal estate tax.

Lastly, from now through Dec. 31, 2018, New York residents will have to contend with the "look-back." For New York estate tax purposes, this means that any gifts made within three years prior to death will be added back into the estate for tax purposes, so long as the decedent was a resident of New York when the gift was made.

And...one must still factor in that Florida has lower property taxes and sales tax, no income tax - and NO SNOW! Even with New York's modified estate tax structure, Florida still looks like a contender for retirees.