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    Moving to Another State: What You Should Know before Calling a Realtor

    Moving to Another State: What You Should Know before Calling a Realtor

    Financial Planning

    By Charles A. Cunningham, CLU®, Partner

    It’s a relatively common story. People retire and begin to think about downsizing to a more affordable and/or manageable residence. Often, that residence may be in a different state. The reasons for moving may range from better weather to closer proximity to children and grandchildren. For many people, however, financial issues are a major motivating factor. They are no longer tied to a certain state because of their work and wish to move to a state with a lower cost of living and perhaps even no income or estate tax.

    Recently, this concern has become more acute. The Tax Cuts and Jobs Act of 2017 may have reduced marginal tax rates, but it also placed a $10,000 limit on the state and local tax deductions you are allowed to take on your federal tax return. That might cover only a fraction of your property tax if you live in certain parts of the New York metropolitan area or other high tax jurisdictions.

    Granted, the new administration has discussed the possibility of removing this onerous cap, but when or if that removal will take place is questionable. The question you should be considering is why do you want to move in the first place.

    If you long to be closer to family, great. If you’re fantasizing about a sunnier clime or a new adventure for the next chapter of your life, also great. If you hope to pay less in taxes or leave a larger legacy to your loved ones, how much will you gain by disrupting your life and changing your residence to a state that may be thousands of miles away? It’s important to try to quantify the financial benefit you’ll gain. If that benefit is truly meaningful, you have a simpler decision to make. But once you make it, make sure you adhere to the following ground rule:

    Becoming a resident of your new state is not enough. You must show that you intend to be domiciled there.

    What does domicile mean in legal terms? Many states define it as the place where you make your permanent home – a place you intend to return to from wherever you may travel.
     
    Sounds simple enough, but problems can often arise if you continue to maintain a residence in your previous state or return there often for business purposes. In other words, you could be taxed by both your new state and your old on all your income. 

    So how can you avoid this scenario and establish a domicile in your new state without being challenged by your old one?

    1. Spend the majority of your time in your new residence. That means at least 183 days per year – preferably more. Document your daily location with a spreadsheet or perhaps an app like TaxBird or Moneo.
    2. Register to vote in your new state
    3. Obtain a new driver’s license and registrations for your cars and other vehicles
    4. Apply for a new passport, even if your old one is still valid
    5. File a declaration of domicile in the county of your new residence
    6. Update your address on the bank and other financial documents
    7. Make sure your will and other estate plan documents comply with the laws of your new state. You might even consider executing new wills and estate documents in your new state.
    8. Direct all mail to your new home, including utility bills, magazines, etc. File a change of address form with the Post Office and notify everyone from whom you receive mail.
    9. Change professional licenses to your new state
    10. Join local clubs and social organizations.
    11. Change doctors and if you have pets, change their veterinarians, too
    12. Move personal items like artwork, heirlooms, and photo albums to your new home. You want to be able to prove that it is indeed the home you plan to return to after traveling out-of-state. One well-known case was judged in the defendant’s favor by the fact that he moved his pets to his new home.
    13. If you do maintain a home in your previous state, you may be challenged if that home is more elaborate than your new one. If you still conduct business in your old state, it might be advisable to spend less time there

    Your Lenox team will work closely with your attorney and accountant to help you cross the t’s and dot the i’s of any move you might be contemplating. You can also look to them for assistance in determining the potential financial benefits you will accrue by relocating – benefits that may include lower day-to-day costs, as well as tax savings.

    Which States Offer the Biggest Financial Benefits?

    According to AARP, the following states impose no income tax:

    • Alaska
    • Florida
    • Nevada
    • South Dakota
    • Texas
    • Washington
    • Wyoming

    Tennessee and New Hampshire do not tax earned income but do tax interest and dividends. However, both states are in the process of phasing out that tax as well.

    As for estate tax, 13 states (plus DC) currently impose an estate tax on estates valued at over their individual exemptions. These include:

    State Exemption
    Connecticut $7,100,00
    District of Columbia $4,000,000
    Hawaii $5,490,000
    Illinois $4,000,000
    Oregon $1,000,000
    Maine $5,800,000
    Mayland $5,000,000
    Massachusetts $1,000,000
    Minnesota $3,000,000
    New York $5,850,000
    Rhode Island $1,579,922
    Vermont $5,000,000
    Washington $2,193,000

     

     

     

     

     

     

     

     

     

     

     

     

     

    In addition, six states impose an inheritance tax on the people inheriting your estate1. These include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The amount of tax depends on the size of the state’s exemption and how your heirs are related to you. Again, consult with your Lenox team for more information.


    1Connecticut does not impose an inheritance tax, but it does impose a gift tax that is unified with its estate tax. Every dollar you give someone above the annual $15,000 limit reduces your lifetime $7.1 million exemption by $1.

    Lenox Advisors, Inc. (Lenox) is a wholly owned subsidiary of NFP Corp. (NFP), a financial services holding company, New York, NY. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 90 Park Ave, 17th Floor, New York, NY 10016, 212.536.6000. Fee based planning services are offered through Lenox Wealth Advisors, LLC (LWA), a registered investment adviser. Services will be referred by qualified representatives of MML Investors Services, LLC (MMLIS). LWA is a subsidiary of NFP and affiliated under common control with Lenox. Lenox, LWA and NFP are not subsidiaries or affiliates of MMLIS, or its affiliated companies CRN202302-278381