Estate Planning Across State Lines

BARRY P. SIEGAL

Partner

"Some states, such as Florida, have no estate or inheritance taxes, while other states frequently tie their estate tax rates to the credit that was allowed under the Federal estate tax laws prior to 2005."

UNDERSTANDING STATE LAW
Estate Planning Across State Lines

Estate planning professionals are finding that clients are becoming increasingly connected with two or more states, either by maintaining residences or investment property in multiple jurisdictions.

Since different states may have different laws that apply to residents of that state—as well as non-residents who own property within the state—it is imperative that your attorney be fully informed of your state connections.

The concept of “domicile” is critical to determining how state laws apply. “Domicile” refers to the state where an individual last maintained his or her principal residence. If you wish to establish a domicile in a particular state, it is necessary that you maintain as many ties with that state as possible. Examples of proof of domicile are: being present in that state for a majority of the year, voting in that state, maintaining a residence, or having a resident driver’s license.

Be Compliant with Estate Laws in Each State

If you have significant ties to more than one state, it is also important that your estate planning documents conform to the laws of each state. For example, although Illinois law requires two witnesses to a will and does not require that a living trust be witnessed, Florida law requires three witnesses to a will, as well as a living trust. Consequently, if you are considering establishing a residence in Florida it is important that your estate plan meets the requirements of Florida law. Similarly, if you are present in a state other than your primary residence, it is wise to have a power of attorney that conforms to the secondary state’s law. We often advise clients who spend at least two-to-three months of the year in another state to keep with them that state’s forms of Power of Lines Attorney for Health Care and Power of Attorney for Property.

The issue of an individual’s domicile will also affect how estate tax or inheritance tax laws are applied. Some states, such as Florida, have no estate or inheritance taxes, while other states frequently tie their estate tax rates to the credit that was allowed under the Federal estate tax laws prior to 2005. In the latter case, the exemption from the tax depends on the individual state, but can range from $1,000,000 to $5,000,000. The impact of the state where residency is established can be quite significant.

Avoid Unnecessary Costs

In addition to the issue of physical presence, maintaining real estate in another state can cause problems. If the real estate is titled in the name of an individual, it will necessitate having a probate estate in the state where the property is located upon the owner’s death, even if the owner is a resident of another state. Obviously, the need to open an additional probate estate results in significant additional cost and inconvenience. This can be avoided if the owner has executed a revocable living trust and the title to the real estate is held by the living trust. An alternative means of avoiding this problem is to have the real estate owned by a limited partnership or limited liability company.

By having your estate plan reviewed periodically, your advisors can assist you in taking steps to insure that your objectives are carried out if you become disabled or die, and that the costs involved, both probate costs and taxes, are minimized regardless of how many different states are involved.