You may already know to update your driver’s license, voter registration, and primary care physician after a move to a new state. Have you remembered to update your estate plan as well?
While your existing estate plan is probably still valid in your new state, it may not have the same effect as it would have had in your former 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 vice-a-versa. Below are some of the key reasons why your plan might be impacted by your move.
1. Estate, Gift, and Inheritance Taxes. While federal estate tax only applies to decedents with estates above $11.5 million at the moment, 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 significantly 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%, for example, in Hawaii.
2. Domicile. Your domicile is your “permanent home,” and will be determined by a variety of factors, for instance, 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. You will be taxed according to the state in which you are domiciled, which can impact your income tax, estate tax, capital gains tax, and more.
3. Marital Property. Marital property laws determine the division of assets between spouses upon death or divorce. In nine states, nearly 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.
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. To update your estate plan so that it remains in line with your wishes, please contact our office to set up an appointment.