Increased mobility in today’s society has changed the ways in which we live, work, and play. Compared to previous generations, it is now quite common for work and recreational activities to cross state lines, resulting in ownership of property and formal relationships in more than one state. However, the expanded opportunities created by mobility may come at a price: the increased likelihood that several states may be able to tax your estate when you die. If you were to die today, do you know if more than one state would attempt to levy taxes on your estate?
The term domicile generally refers to the place intended to be your permanent home, as distinguished from the term residence, which could be any place you live. Although you could have simultaneous residences in several states, in theory, you can have only one state of domicile at a time.
A problem may arise when theory and reality part company: when separate states reach different conclusions by applying different definitions of domicile to the same set of facts. This may result in the apparent inconsistency of more than one state claiming the deceased was a “domiciliary,” and each taxing that person’s estate accordingly.
Under the Uniform Interstate Compromise of Death Taxes Act, the states involved may be able to reach a compromise in a specific situation. However, if the states involved have not adopted the Act or cannot agree on a solution, the estate in question could be fully taxed in multiple jurisdictions.
Establishing Your Domicile
Fortunately, there are steps that can be taken to establish your state of domicile. If you have moved, your “true” domicile may hinge on the number and significance of the contacts you have in your former and present state. Consider the following significant factors:
- Retention of “historical” home. If you have moved, have you sold your long-time residence in a former state?
- Business relationships. In which state are your significant business contacts located?
- Location of property. Where is most of your significant real and tangible personal property located?
- Social connections. Where do you maintain political, civic, religious, and family connections?
- Time spent. Where do you spend the majority of your time?
While you may feel your intent is clear, it is most likely that your actions will be viewed as the evidence of your intentions. Consequently, simple acts such as changing your voter registration to the new locale, changing your automobile registrations and driver’s license, formally resigning from organizations in your former state, and formally joining organizations in a new state may be viewed as evidence of your intent to change your domicile.
Under some circumstances, the lines may not be so obvious. For example, if you moved to another state but maintained significant business and social relationships in your former state, where is your domicile? In situations where conflicting evidence exists, an appropriate strategy might be to first determine which state appears most advantageous in terms of estate taxes and to determine how domicile is defined there. You can then focus on the factors that will be the most significant in reconciling your domicile.
Estate taxes may be one factor in choosing a state of domicile. For guidance on your unique circumstances, be sure to consult your tax and legal professionals.