Generally, the first criterion for determining whether an individual is subject to probate or to estate or inheritance tax in a state is the individual’s domicile at the time of his or her death.

In an increasingly complex and shrinking world — with job opportunities becoming more portable, children moving to other locales to seek those opportunities and parents following along (or elderly parents moving to live near or with their children), and people escaping to warm-weather climates for large parts of the year — we are seeing the issue of residence and domicile for estate tax and income tax purposes coming up more frequently. Add to this the fact that states (especially in the Northeast) are looking for tax revenues wherever they can find them, and you have a recipe for dueling states looking for tax revenues from the same people. There is often a significant difference between the taxes inherent in living or working in different states, so the question of residence or domicile requires some thought and planning.

For income tax purposes, the residency requirement is generally based on objective criteria, such as the number of days you reside in a particular state in a given year. For example, many state laws provide that you are a resident of the state if you spend more than 183 days in the state during the year. If an individual does not spend more than 183 days in any one state during the year, more than one state may claim that individual as a resident, causing them to potentially owe tax in two or more states. Often, your accountants will help you determine your residency for income tax purposes based on these objective criteria.

Generally, the first criterion for determining whether an individual is subject to probate or to estate or inheritance tax in a state is the individual’s domicile at the time of his or her death. A domicile is where one intends to make his or her home for a permanent or indefinite period. A taxpayer can have only one domicile. Once domicile is established, it continues until it is established elsewhere. If one moves temporarily, without establishing domicile in another state, domicile continues to be in the state where domicile was established.

Many factors are used to determine domicile. Please note that no single factor will determine the state of domicile. All relevant factors are evaluated. Below is a list of some of the factors that are considered in making domicile determinations.

Property Ownership and Residence

• the location of your principal residence
• your mailing address
• where you spend the most amount of time
• where you applied for a homestead or veterans property tax exemption or other comparable benefit.

Family and Dependents

• whether you can be claimed as a dependent on another person’s federal income tax return and where that person is domiciled
• where your spouse or close family members reside.

Licenses and Registrations

• where you are registered to vote
• which state issued your driver’s license
• where your vehicles are registered
• where you maintain professional licenses
• where you declare residency for hunting and fishing licenses.

Financial Data

• the state where active bank accounts or loans are located
• the state where you qualify for unemployment insurance
• the state in which you filed previous resident tax returns
• the state where you earn your wages
• the address recorded for insurance policies, deeds, mortgages or other legal documents, such as your will
• the state where you maintain safe deposit boxes.

Affiliations

• the state in which you hold fraternal, social or athletic memberships
• the state where you maintain union memberships
• the location of a church or other house of worship of which you are a member or generally attend services.

Other Factors

• where your valuable personal property (art, antiques, jewelry, etc.) is located
• where you conduct your business
• the address listed for you in a telephone directory
• where you keep your pets
• the location of your personal physician or where you have been admitted to a hospital for nonemergency treatment.

Even if an individual is domiciled in one state, his or her heirs may still need to pay estate or inheritance taxes or probate a will in another state. This situation generally arises if the individual owns real property in a state that is not his or her state of domicile. Proper planning may avoid the need for a separate probate in those other jurisdictions. Please contact any one of us if you would like to discuss your particular situation.