Increased mobility in today’s society has changed the way 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 owner- ship of property and formal relationships in more than one state.
When you consider the terms domicile, statutory residence, and residence, they may seem similar at first, but it is important to understand how they are different. Your domicile is the state where you maintain your permanent residence and intend to return to for prolonged periods. An individual can have only one legal domicile at a time. A statutory residence is the place where you live and work; you are subject to the income tax for that state. If you are a statutory resident of one state, while claiming a domicile in another, your domicile state may also require you to file a tax return. Your residence is any place (or places) where you live; the term “residence” bears little or no legal significance.
Estate Planning
Where your will is probated is determined by your domicile. If your domicile is unclear at your death, several states may be able to claim you as a domiciliary and tax your estate accordingly. Keep in mind that estate tax laws vary by state, and state laws may differ from Federal laws. In some states, your spouse may be taxed on a portion of his or her inheritance that, in another state, would pass to him or her free of state estate tax. Some states exempt smaller estates and certain property from the probate process. Other considerations may also apply.
In addition, your choice of domicile can affect your overall financial plan, especially regarding property ownership. Not all states define property ownership in the same way. Some allow married couples to own property and income separately. In other states, known as community property states, married couples share ownership of all assets acquired during the marriage, but each spouse may own previously acquired property separately. If you change your domicile during the tax year and both your present and former domiciles tax income, you may have to file partial-year tax returns in both states.
Establishing or Changing Domicile
You can take certain steps to establish your state of domicile. In general, your domicile is not determined by the length of time you spend in a state. You may establish a domicile when you first occupy a property, or you may spend decades in a place and never call it your domicile. If you marry a person domiciled in another state, you may be able to claim your spouse’s domicile as your own, even if you never visited that state.
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. Here are other significant factors for you to consider:
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 civic, religious, or 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 determine the evidence of your intentions. Consequently, simple acts such as registering to vote in a new locale, changing your automobile registrations and driver ’s license, resigning from organizations in your former state, and joining organizations in a new state may also be viewed as evidence of intent to change your domicile.
Because your choice of domicile can affect your overall estate planning, be sure to consult your professional legal and tax advisors for specific guidance on your unique circumstances.