Category: Estate Planning
Tags: Estate Tax, Tax, Trusts


State Residency and Domicile in Estate Planning

Posted on: January 29th, 2015

domicile claims

You may claim domicile in one jurisdiction and live in another, which can be helpful in estate planning.

Tax, probate, and asset protection laws in each state vary. Individuals might want to establish residency in a jurisdiction with attractive legislation for estate planning purposes, and they do not necessarily have to relocate in order to take advantage of the laws.
 
Celebrity deaths often publicly reveal solid estate plans or, sometimes, estate planning mistakes. The death of Philip Seymour Hoffman brought attention to preserving cultural values in one’s estate plan. Robin Williams’ passing highlighted the confidentiality provided by trusts. The more recent death of Joan Rivers illustrates the ability of an individual to claim residence in one state and domicile in another.
 
Our estate planning attorneys work with many clients who have assets in multiple states. Individuals can maintain multiple residences; however, they may only maintain one domicile. Domiciles may be declared if the individual has a significant connection with the area or has full intention to make it their permanent home.
 
Depending on the unique needs and goals of an individual with assets in various states, one of the states may offer significantly greater asset preservation for estate planning. For example, New York’s current estate tax law includes a ‘cliff’ – all estates valued 5% or more over the exemption (currently $2,062,000) are taxed on their entirety by 16%. North Carolina, however, does not impose an estate tax. Under certain circumstances, an individual could be a resident of New York and claim North Carolina as their domicile.
 
In regard to Joan Rivers’ estate, she claimed New York as her residence and declared domicile in California. Her estate plan provided that New York law should be used for estate administration purposes unless she died in California. The trust document provided that if she died in California, then California law would apply. (California does not impose an estate tax.)
 
It remains to be seen if either state will contest the terms of her estate plan. Every state has different requirements for residency. Some states mandate a physical residence be maintained for a specific time annually, voter registration, that the individual spends a certain number of days within the state each year, bank accounts are maintained, and other rules.
 
Any relocation, whether impending or many years in the future, should trigger an estate plan review with an attorney. A will is not the only item that should be updated; if trusts are in place, moving out of state could require trust modifications. An estate plan does not necessarily move with you. Check with an estate planning attorney before changing your state of residence.
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