When people move, they usually remember to get a new driver’s license, to update their voter’s registration, and to find a new doctor. But they usually forget to update their estate plan. While your existing estate play is technically valid in your new state, it may not have the same meaning that is had in your former state. Laws can vary significantly between states, and may affect your income tax, state estate 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 vise-a-versa.
In addition, it is important to review your estate plan every 5 years. When you review your plan, look for any significant life changes for you, your beneficiaries, or your fiduciaries (birth, death, marriage, divorce), or for changes in tax laws that affect your estate. Updating your plan can reduce unnecessary stress or unintended consequences resulting from differences in state laws. Below are some of the key reasons why your plan might be impacted by your move.
Domicile
You will be taxed according to the state in which you are domiciled. Your domicile is your “permanent home,” and will be determined by a variety of factors – where you own a home, where you spend your time (especially if you have property or contacts in multiple states), where you work, where you are registered to vote or drive, and the address in your legal documents.
Marital Property
Marital property laws determine the division of assets between spouses upon death or divorce. In nine states, including Washington State, almost 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 they receive 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.
Health Care
Heath care power of attorney and advance health directives vary by state. While they are technically valid across the country, medical personnel may only be familiar with their home state’s typical forms. Legal counsel may be needed to confirm your agent’s authority, which could delay decision-making in your care.
Additionally, geography is an important factor in selecting your fiduciaries. It can be logistically difficult to make decisions on your behalf from another state. Some states do not allow non-residents to serve as personal representatives or executors, unless they additionally have an in-state agent or post a bond to protect your estate.
Estate, Gift, and Inheritance Taxes
While federal estate tax only applies to decedents with estates above $11.5 million, 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 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% (in Hawaii).
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. When selecting a new estate planning attorney, reach out to your existing estate planning attorney or your existing tax or financial advisor, as they may have referrals in the area where you will be living.
If you recently moved to Washington State, set up a consultation today to update your estate plan.
