Where you live seems like a simple question, and most often it is fairly simple. You may offer your home address and have done with it. However, for many retired individuals, the answer is not so simple. “Snow birds,” people with second homes, and those traveling in mobile trailers may all require some analysis as to where their true home is. It is a preliminary question for many areas of law. The answer may have dramatic tax and estate planning implications.
Upon your death, any probate proceedings that arise will need to occur in your domicile state. Probate proceedings obviously will include full formal probate and small estate procedures if you have not created an estate plan or only have a Will. However, even if you have created a trust, any contest over its validity or matters involving funding may require probate court involvement. Any states where you own real property will have jurisdiction over that real property (called “ancillary probate”), but may apply the law of your domicile state. However, without clear instruction, it may be possible for your heirs to choose to initiate a contest in one of those states and argue that state’s law should apply. If you arguably have multiple residences, it may be important to discuss your domicile with your attorney. You can then discuss whether one state’s laws may be more advantageous for your estate plan.
Similarly, just as the federal government taxes your worldwide income, your home state often taxes your worldwide income. Other states will only tax “source income” earned within that state. When dealing with primarily passive income, such as earnings from investments, and ordinary income that is not earned currently, such as retirement plan distributions and social security, you are still subject to tax in your home state. When deciding to move to a state like Nevada, Florida, or Texas where there is no state income tax, it is important to exhibit the change in your domicile. If state death taxes return, your domicile will be critical to determine whether your estate is liable for the tax.
The matter is not resolved simply by where you are located when you die or even where you spend most of your time, although these may be considered. A domicile can only be lost when another one is gained and is defined as your true and permanent home, or the place to which you always intend to return when you are away. For example, for “snow birds” who live half the year in each of two states, the question becomes which is the “vacation” and which is the “home.” Absent a clear declaration to the contrary, courts will look to your “ties” to each state such as where you receive mail, register your cars, and hold a driver’s license and voter registration. Especially if you plan to move to another state for retirement, or to come to California for retirement, deciding your domicile can prevent a lot of hassle! By considering the tax and estate planning advantages of different jurisdictions, you can ensure that the law you want will apply to your estate after death. From there, making sure that you cut off as many ties with your former domicile and create as many ties to your new domicile will help establish where you live.
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