When considering where one lives, common factors include employment and extended family. However, for the Baby Boomers who are retiring in increasing numbers, employment becomes less of a factor. Also, many Baby Boomers find that their families are spread across many states. At some point it may make sense to consider whether you should change your domicile or residency.
Factors to consider may include whether the state you live in will tax your estate at your death. Also to be considered is the income taxation during your lifetime. Another consideration may include healthcare decision-making. As well as the consideration of laws affecting spousal rights of election, which vary from state to state.
While most states have a state income tax, the income tax rates vary from state to state. There are a few states, such as Nevada, which impose no individual state income tax.
In addition to the federal estate tax, many states impose an inheritance tax or death tax upon your death. And some states have a rather low exemption amount retaining the old $600,000 or $1,000,000 exemption. Other states, again such as Nevada, impose no death tax or inheritance tax.
Where you live may also affect your access to different types of pain management, healthcare decision-making ability, or even assisted suicide. Some may consider changing their domicile to one of the five states which allow for “death with dignity,” or assisted-suicide. For example, Brittany Maynard was a 29-year-old woman that had incurable brain cancer. Brittany moved her domicile from California to Oregon in order to take advantage of that state’s death with dignity laws. To read more about Brittany’s case, go here.
A more difficult situation can arise as one ages and becomes incapacitated. There is a split in the courts as to whether a guardian can change an incapacitated ward’s domicile. While the courts may differ and the law being unclear, it cannot hurt to be proactive in your planning and grant an express right to change domicile in your Power of Attorney for Healthcare Decisions. Your Revocable Living Trust should also contain provisions which allow the Trustee to change situs and governing law to help further assist the change in domicile.
From an estate planning point of view, attorneys have long focused on the estate tax implications of a client’s domicile. However, with the increasing importance of longevity planning, advisors need to take an earlier and broader consideration of domicile planning issues for many clients. While family considerations will always remain an important factor in choosing a domicile, with an aging population there are a number of other factors as discussed above that should be considered, including making sure that a client will not fall short of funds in their later years. This may mean moving to a state with lower income taxes and lower living expenses in order to create greater financial security over the long run.