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Many retirees find joy in splitting their time between warmer climates during the winter and cooler ones in the summer, making them what many call “snowbirds.” If you have dual residencies, ensuring that your estate plan considers the legalities and tax implications of living in multiple states is crucial. Let’s explore how to protect your estate, no matter which home you’re in.
Understand State Residency Rules
One of the first steps in estate planning for snowbirds is understanding how each state determines residency. Each state has different rules for establishing your residency, which can affect your estate taxes and other obligations.
- Establish a domicile–To reduce tax complications, you must decide which state is your primary residence—your domicile. This decision will significantly impact estate taxes, as the laws differ from state to state.
- Document your intent–Establishing ties in a state can help prove which state is your domicile. This can include registering to vote, getting a driver’s license, and keeping most of your valuable personal items there.
- Keep records–Some states may challenge your residency status if it means they might lose out on tax revenue. Keep records, such as receipts or travel logs, that show how much time you spend in each state.
Review State-Specific Estate Tax Laws
Different states have varying laws regarding estate and inheritance taxes. If you have properties in multiple states, it’s critical to understand how each state’s laws apply to your estate.
- Estate taxes–Some states impose their own and federal estate taxes. Knowing which states have estate taxes and at what thresholds can help you strategically plan your asset distribution.
- Property ownership–If you own property in more than one state, each state’s laws will govern what happens to that property when you pass away. Ensure your estate plan addresses each property accordingly through a revocable trust or another strategy to simplify the process.
Update Your Estate Documents
An estate plan should reflect your current situation. For snowbirds, this means updating your documents to account for dual residency.
- Wills and trusts–Ensure your will and trusts are valid in all the states where you reside. Some states have unique rules regarding wills that could invalidate a will drafted in another state.
- Healthcare directives–You may also need multiple healthcare directives or durable powers of attorney that comply with each state’s requirements. This ensures that your healthcare wishes will be honored without legal complications if something happens while you’re away from your primary home.
Consider a Revocable Living Trust
A revocable living trust can be an effective tool for snowbirds, especially when avoiding probate in multiple states.
- Avoid probate–If you own homes in different states, your estate might have to go through probate in each state unless you’ve made prior arrangements. Transferring property ownership to a revocable living trust can prevent this hassle and streamline the management of your estate after you pass.
- Flexibility–A revocable trust allows you to retain control of your assets during your lifetime and make changes as needed, ideal for snowbirds whose situation may change frequently.
Tax Implications of Dual Residency
Taxes are often the most significant estate planning challenge for snowbirds, as income and estate taxes can come into play.
- Income taxes–States may try to claim you as a resident to tax your income. To minimize conflicts, ensure your primary residence is documented, and follow all necessary procedures to demonstrate your intent to reside there.
- Gift and estate tax–Different states have different thresholds for estate and gift taxes. Planning with an attorney who understands the rules of both states where you reside can help you minimize these taxes and avoid unexpected liabilities.
Work with an Estate Planning Attorney
Dual residency requires specialized attention when it comes to estate planning. Working with an attorney who understands the nuances of living in two states can ensure you’re not caught off guard by unexpected tax bills or legal complications.At Merlino & Gonzalez, we understand the unique needs of snowbirds and can help you develop a comprehensive estate plan that works no matter which state you call home. Contact us today to discuss your estate planning needs and ensure both homes are protected.