March 15, 2016
Private Clients Alert
Author(s): Jennifer Collins
Your state of residence and your domicile are important for income tax and estate tax purposes, and your domicile generally governs estate tax determinations. This alert discusses what individuals and advisors need to know.
Prior to her death, comedian Joan Rivers thought about and made a clear indication as to her chosen state of domicile. Rivers’ actions highlight for all of us an important estate planning issue: choice of domicile.
Rivers, who split her time between New York and California, declared in her will that she was a resident of New York, but that she intended her state of domicile to be California.
If Rivers was domiciled in New York at the time of her death, her estate would be subject to a New York estate tax. If she was domiciled in California, which does not have a separate estate tax, it would save her estate millions of dollars in estate taxes.
Your state of residence and your domicile are important for income tax and estate tax purposes. You may be a resident of a state, and therefore subject to income tax in that state, while maintaining your domicile elsewhere. Your domicile generally governs estate tax determinations.
Domicile is considered to be the place of your fixed, principal and permanent home and the place to which you intend to return even if you currently reside elsewhere. While you can have multiple residences, you can have only one domicile.
A determination regarding an individual’s domicile depends upon all the facts and circumstances in each case, including the good faith of the individual. The most important factors in determining domicile include the physical, business, social and civic activities of the taxpayer.
Considerations regarding domicile generally impact two groups of individuals: (1) those who split their time between two or more states, whether for personal or professional reasons, and (2) those who relocate from a state with a separate estate tax to a state that does not have a separate estate tax. For example, if you retire to Florida, or split your time between Florida and New York or Massachusetts, your domicile becomes key to determining your tax exposure.
There are currently 18 states that impose some form of an estate or inheritance tax. If you are domiciled in one of these states, you will be subject to any applicable estate or inheritance tax in that state. In order to support a claim of domicile, you must evidence your intent to make the non-taxing jurisdiction your permanent home.
If you split your time between more than one state or if you relocate to a non-taxing state and intend to claim the non-taxing state as your domicile, you must intend to treat that jurisdiction as your permanent home and your intent must be supported by your actions. Taxing authorities generally look to the following factors in determining one’s domicile:
Domicile is complicated as states do not want to let go of your tax dollars. Our Private Clients attorneys can assess whether you may be impacted by domicile considerations and will work with you to establish domicile in your intended jurisdiction.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.