When people move, they usually remember to get a new driver’s license, to update their voter’s registration, and to find a new doctor. Did you know that updating their estate plans should also be on their to-do lists? While your existing estate plan is probably still valid in your new state, parts of it may prove invalid or ineffective under the laws of your new state. Laws can vary significantly between states, and may impact items like your income tax, state estate tax or inheritance tax, and whether your property is considered marital or separate. What makes a good plan in California or Florida may not be favorable in Texas, New York, or Washington, and vise-a-versa.
In addition, it can be important to review your estate plan every 5 years. When you review your plan, look for any significant life changes for you, your beneficiaries, or your fiduciaries, such as birth, death, marriage, or divorce among family or loved ones and for changes in tax laws that could impact your estate. Updating your plan can reduce unnecessary stress or unintended consequences resulting from differences in laws. Let us review some of the key reasons why your plan might be impacted by your move.
You will be taxed according to the state in which you are domiciled. Your domicile is your “permanent home,” and can be determined by a variety of factors, such as where you own a home, where you spend your time, where you work, where you are registered to vote or drive, and the address in your legal documents. If your domicile state changes, so will the laws governing your estate plans.
Furthermore, changes in state can mean significant changes in applicable marital property laws. Marital property laws determine the division of assets between spouses upon death or divorce. In nine states, almost all property acquired during a marriage is community property, meaning it is owned equally by both spouses. Upon the death of the first spouse, all of the community property automatically transfers in full to the surviving spouse, and he or she receives a step up in basis for capital gains and income tax on that property. The other 41 states treat each spouse’s property as individually owned. Thus, a trust prepared in a separate property state may be detrimental to the surviving spouse once domicile is established in a community property state, where the laws are more favorable to spouses.
Health care directives, including living wills and health care surrogates, can also vary by state. While they may be technically valid across the country, medical personnel may only be familiar with their home state’s typical forms. Legal counsel may be needed to confirm the validity of out of state documents, which could delay decision-making in your care.
Additionally, geography can be an important factor in selecting your fiduciaries, such as an agent under a power of attorney or the personal representative of your estate. It can be logistically difficult to make decisions on your behalf from another state. Some states do not allow non-residents to serve as personal representatives or executors, unless they additionally have an in-state agent or post a bond to protect your estate.
There can also be big estate tax changes when you move to a different state. While federal estate tax only applies to decedents with estates above $11.5 million, state estate, inheritance, and gift taxes may be imposed on decedents with significantly lower net worth. The tax rate as well as the amount that may be excluded, varies between states. In Massachusetts and Oregon, the exemption limit is $1 million, while Maine’s exemption limit is $5.7 million. The tax rate on amounts over the exemption can be as high as 20%, like it is in Hawaii.
These are just a few of the key reasons why you should meet with a local attorney who is experienced in estate planning when planning to move. Our office is available to act as a resource to those who have recently relocated. Please contact us to schedule an appointment time.