Text Resize
Subsribe to RSS Feed
Sunday April 23, 2017

Personal Planner

Domicile - Where You Live Affects Your Taxes

Domicile - Where You Live Affects Your Taxes

A successful business owner with a large estate passed away in 1976. He had grown up in Texas, moved to California and also lived for many years in Nevada. With a $2.5 billion estate, there were substantial federal and state taxes.

While the estate proceedings were held in Nevada, both California and Texas sued to collect state estate tax. The Nevada Court eventually determined that the domicile or personal residence of the businessman was in Nevada. This was quite important, because the 40 wills that had been submitted were all determined invalid under Nevada law. The estate was finally distributed to 22 cousins under the intestacy law of Nevada.

While this was an unusual case with a very large asset value, there are several reasons why you should understand the basic rules of domicile. Where you live can affect both the distribution of your estate assets and your estate taxes.

There are two basic words that are used in common language, but may have quite different legal meanings. You may be a resident of a given location, but you can only have one "domicile." Your domicile is your permanent place of residence. It is where you reside most of the year and where you intend to make your fixed and permanent home.

If you have homes in more than one state, then the question of domicile may become quite important. For example, if your will were declared invalid the laws of your state of permanent residence would determine who receives your property. These laws vary substantially from state to state, and they are quite likely to generate litigation by distant cousins and other family members. Some family members may receive more under the law of state A and some may receive more under the law of state B. This result will nearly always lead to litigation - with a potentially huge cost to your estate.

Old State Domicile

If you have homes or a residence in more than one state, you may decide for tax or other reasons to move to a new state. However, the auditors of the "old state" revenue department may seek to find reasons for you to pay estate tax to the old state.

There are several flags that state tax auditors will examine to try to show that you still are domiciled in the old state.

1. If you have retained your old home and it is more valuable than the new state home, that will be considered.

2. You spend a sizable period of time in the old home and employ domestic assistance there.

3. If you have a business and are actively involved in the business, that could show that you intend to stay in old state and are subject to taxes there.

4. If you spend the majority of your time (and most states count any part of a day as a day in the state), then you could be considered domiciled in old state.

5. If you have valuable art collections or other items of great personal importance and you keep them in old state, that is another potential tie.

6. If there are children, grandchildren, nieces or nephews or other relatives that you regularly visit in old state, that suggests intention to remain there.

While the question of domicile is a fact-based issue, any of these factors will be used by state tax auditors to try to collect estate tax from your executor. If you intend to change your domicile to a new state (perhaps a low-tax state), there are a number of steps that you should take.

How to Change Your Domicile

In order to change your domicile, there are 10 steps that will indicate you intend to be a permanent resident of your new state.

1. Sell your old home and buy a home in new state. This is a very clear indication that you plan to live there. You also should keep track of the time that you spend in old state. The majority of your time should be spent in new state. It is helpful if over 183 days per year are spent in new state.

2. Obtain your driver's license in new state. If necessary, attend training or education courses related to driving vehicles in new state.

3. Register all of your vehicles, such as your cars, boat or recreational vehicle in the new state.

4. File your final partial tax return in old state. After that, plan to file your income tax returns and pay state income taxes in new state. If the state does not have income tax but has an intangible property tax or other type of tax form, file and pay that tax.

5. Register to vote in the new state. Do not vote again at any time in old state.

6. Close your bank accounts in old state and open new bank accounts in new state.

7. Close your securities accounts in old state and open securities accounts with brokerage firms in new state.

8. Obtain medical advisors and financial advisors in new state. Transfer all of your medical records and financial records to the new advisors.

9. Purchase a cemetery plot or other burial location in new state.

10. Change your passport address or obtain a new passport with the address of your residence in new state.

New State Documents

Another important way to show that you are moving to a new state is to contact an estate planning attorney in the new state and obtain new documents. It is desirable to sign a new will, a living trust, a durable power of attorney for healthcare or advance directive and a HIPAA release. All of these documents will demonstrate that you now are intending to be a permanent resident of your new state.

If you take the 10 steps and complete your new documents, you can be quite confident that you now have changed your domicile to the new state. If you spend a considerable period of time or still have an active business interest in the old state, you should also make certain that you are keeping track of the exact number of days that you spend each year in the new state and the old state.

If you pass away with a substantial estate, your heirs will be pleased that you have documented your domicile. Please note that the exemptions for estate tax or inheritance tax may be much lower in many states than a future federal estate tax exemption. Therefore, even with a moderate estate, there may be incentive for the state tax auditors to want to collect tax from your estate. Taking these steps and keeping good records is a way of protecting your heirs from the state tax auditors.

Published April 21, 2017

Subsribe to RSS Feed

Previous Articles

Family Limited Partnerships

Family Business Bailouts

Family Business - Sell and Retire

Loans and Sales to Children

Gifts with Life Income


Shelby Harder, 2018

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Max Loebl, 2017
Grace Gates Scholarship and Schade Family Scholarship

"Lawrence has been a life changing opportunity. My experience here is made possible by the Grace Gates Scholarship and the Schade Family Scholarship. I will always be grateful for the generosity that made my life at Lawrence a reality. I am incredibly thankful for the amazing education and lifelong connections I have made here. Beyond a doubt, my time at Lawrence has been a multifarious experience; playing varsity soccer, working in the Volunteer and Community Service Center, and now serving as the President of the Lawrence University Community Council. The times spent at Lawrence will be carried with me and cherished for the rest of my life."

Magdalen D'Alessio, 2017
Lillian Seybold Wells Memorial Scholarship

"Hello, my name is Magdalen D'Alessio, I'm majoring in Psychology and minoring in Education Studies and History. I am extremely thankful to be a recipient of the Lillian Seybold Wells Memorial Scholarship as I have been able to further my education and pursue my extracurricular interests, including Dance Team, and participating in the many International programs offered on campus. I'm really glad to be able to attend Lawrence and hope to expand my knowledge of the world even further! In the near future, I plan to conduct an independent study regarding the relationship between the government and school systems and the importance of parental involvement!"

Joe Johnson, 2017
Amy Aplin Larsen Scholarship

"The Amy Aplin Larsen Scholarship has allowed me to pursue tons of opportunities at Lawrence as part of a liberal arts education. I have been able to take classes from close to a dozen different academic departments, perform in ensembles and theatre productions, and take part in shaping the Lawrence community. Regardless of what field I may go into, the connections I have made here at Lawrence with staff, faculty, and friends have been invaluable. Thank you!"

Facebook Twitter Instagram YouTube