Where Do I Live for Income Tax and Estate Tax Purposes?
Domicile vs. Residence
Many Connecticut residents live elsewhere for a significant part of the year. For example, you may stay in Cape Cod for the summer, or you may go down to Florida for the winter. For folks who do not stay in the same place year round, the question of where they are “domiciled” becomes harder to answer. Domicile is a legal term referring to a person’s place of residence combined with the intent to stay in that place indefinitely. A person can have multiple residences, but only one domicile. Another way of looking at it is to say that a person’s domicile is their permanent home base.
Domicile is important for estate planning purposes because it determines where the deceased person’s estate should be probated. It determines where a deceased person’s estate will primarily owe and pay taxes as well. It can also have an effect on who inherits an estate. This is especially true if a person dies intestate (without a valid will). This is because state law determine who is entitled to inherit the estate. There can be significant differences between inheritance laws from state to state. This includes whether certain provisions in a Will are going to be respected in the probate process.
Determining the domicile of people who live in one place all year is simple. However, it is sometimes hard to determine the domicile of people who divide their time between two or more states. The way a court determines where a person is domiciled is to look at the intent of that person to return to their permanent home based on his or her actions.
States look at factors such as:
how much time you spend in a state,
whether you have family or social ties there,
where the majority of your personal property is located,
where you voted, and
whether you conduct business there;
to determine your intended state of domicile.
Here are the minimum actions you can take to clarify your intended domicile:
- Spend at least 183 days a year in your state of domicile and keep records of the time you spend in each state or country you visit during the year;
- Use your address in your state of domicile as your mailing address;
- Important legal documents, such as wills, powers of attorney, and insurance policies should conform to the laws of your state of domicile. If you have old legal documents showing a different state of domicile, draft new documents rather than simply executing an amendment or codicil;
- Register your vehicles in your state of domicile;
- Obtain a driver’s license in your state of domicile and cancel any driver’s license from a different state;
- Register to vote in your state of domicile;
- Open bank accounts, including savings, checking, and investment accounts, in your state of domicile and close existing accounts in other states or keep the balances small; and
- Open a safe deposit box in your state of domicile and close any boxes in other states where you spend time.
If you have questions about the tax implications of your state of domicile or to learn about potential estate tax planning opportunities, call our office at 888-822-8778 to schedule a consultation.