Estate planning for “snowbirds”, individuals who split their time between two different states, typically spending winters in a warmer climate and summers in their home state requires careful consideration of the legal and tax implications in both states. Many retirees are finding themselves no longer bound to a consistent geographical location. There is a simple way for retirees to avoid two different sets of taxes.
Establishing Domicile
Domicile is crucial for tax purposes, particularly for state income and estate taxes. Typically, domicile is the state where an individual intends to return and considers their permanent home. Legal factors that help establish domicile include the location of primary residence, where you vote, the location of your primary physician, bank accounts, and driver’s license. Different states have different rules regarding the taxation of retirement income, including pensions, Social Security benefits, and IRA distributions. Snowbirds should understand how their retirement income will be taxed in each state they reside in. While federal law provides some relief from double taxation, snowbirds should be aware of the tax laws in both states to avoid being taxed twice on the same income. Some states have reciprocal agreements, but this is not universal.
Property Ownership in Multiple States
When owning property in different states, ensure you have proper estate planning tools to assist in managing property. Consider the use of trusts or other legal mechanisms to assist in property management, which can simplify the estate administration process and potentially avoid ancillary probate. Ancillary probate is the process of opening Probate in two or more states. Revocable trusts are common ways to hold property to facilitate ease of transfer upon death and potentially avoid probate. It is important that your estate planning documents, including your will and any trusts, consider the laws of each state where you own property. This might involve having local attorneys in each state review your documents. It is an often occurrence where snowbirds end up residing back where their children are. Snowbirds move to a warm, sunny state, and years later can become incapacitated, and their children then move them back to where the children reside. Now the parent is incapacitated and residing in a state they were not planning on residing in, without the ability to amend their estate planning documents.
Estate Planning Documents
Ensure that estate planning documents such as Wills, powers of attorney, and health care directives are valid in all states where you spend significant time and that your Wills and trusts comply with the laws in both states. It might be necessary to have separate documents for each state, although a well-drafted Will or trust in one state is generally valid in another, subject to local property laws. This is important for medical decisions if you become incapacitated while away from your legal residence.
Conclusion
Snowbirds should consult with experienced attorneys licensed in both states. They can provide specific advice tailored to your situation. Regularly review and update your estate plan, especially if there are significant changes in state laws or your personal circumstances. If you would like to discuss your estate plan, contact our team at Legacy Counsellors today. Email us at info@legacycounsellors.com or call us at 413-527-0517.