Saying Goodbye Is Never Easy

Mark Wendall |

By Mark Wendell

Have you ever thought about moving your home sweet home to another state? Have you ever talked to your CPA or lawyer about it? A word to the wise: Talk to appropriate professionals before you move about this topic and the applicable tax and legal details involved.  State tax authorities in California do not make it easy to say goodbye, with investigators and auditors who are on the lookout for those who move out of state, forcing residents to prove they really have cut ties in favor of less expensive tax jurisdictions. The more ties you cut that are typically used frequently, and the more documentation you accumulate, the more likely you will be viewed as having left the state permanently. Important items to provide validation of a permanent move include such items as school records, DMV registrations and driver’s licenses, voter registrations, phone numbers and records, utility records, home ownership/rent records, pet records, business relationships/ownership and offices records, a documented change in lifestyle, hobbies documentation, miscellaneous shopping receipts, gardeners and pool services and professional club memberships, shopping receipts, bank relationships, and a new job/occupation/position well documented, transportation receipts, and records of friends, family and relatives visiting your domicile. Also included on the critical list is evidence of professional relationships changes, where appropriate as not all must change: new doctor, lawyer, CPA, insurance services, veterinarian, and home domestic employees.

 A crucial factor in determining a person's potential tax liability goes beyond the rule of thumb - 184 days in one location per year (California uses a “facts and circumstances” test, meaning it looks at all the facts about a taxpayer’s situation to determine residency status; the number of minimum days and specific criteria varies by state). This factor determines the intent as to whether a location is a domicile or a residency. A domicile is a person’s fixed, permanent and principal home address in which they reside and that they intend to return to and/or remain in (see important items above); and that while a person can have multiple residences, they can only have one domicile. This distinction is important because an individual may be living in a certain residence for a certain period, but if it is not the place to which they attach themselves and intend to return, it is not their one and only domicile.

These definitions matter because showing domicile in one state isn’t enough to ensure that only that state will tax the household. Instead, domicile merely ensures that the state is a state of residence, while other states may claim the individual is a statutory resident as well, potentially triggering another layer of income taxes. The importance of an individual's domicile is critical in other matters as well. It impacts not just income taxes but also many legal matters such as traffic laws, insurance liability and creditor protection, family law, and estate and trust matters.

While establishing as many ties as possible in the new state is critical, as well, clearly cutting ties from the state left behind is equally critical. For the cleanest break possible, it is advisable to sell the existing residence and to buy in the new state, as this demonstrates clear intent to re-establish one's domicile and residency. To defend a challenge from a state authority of one’s change to a new state, a thorough record keeping system is absolutely critical. And while the ability to establish one’s intent to make a state change is quite necessary, it is advisable to make the move under the guidance of professionals before, during and after your move to the new location that you will call home sweet home.

 

Copyright © Mark Wendell 2020 All rights reserved

MD Wealth Partners, Inc:  A preeminent personal wealth enhancement boutique for select clients.

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Mark Wendell

Direct  (805) 402-8642

mark@mdwealthpartners.com

 

Nick Willenbring

Direct  (310) 855-3279

nick@mdwealthpartners.com

MD Wealth Partners, Inc. is a Registered Investment Advisor in Westlake Village California and provides a range of investment and estate planning services.  The article is a brief overview and is intended to provide information only.  Information is not legal advice and you should consult with qualified legal counsel prior to implementing any estate planning.  The article covers some important considerations associated with living and posthumous estate planning issues and is by no means comprehensive. The accuracy of the article content is not guaranteed.  Always seek the advice of a competent professional when making important financial and/or legal decisions.  The information contained in this article is not a solicitation to purchase or sell investments.  Investing involves risks and there is always the potential of losing money when you invest.  Specific investments may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an individual investor’s circumstances and objectives.