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Migrating
Mistakes
It seems we are constantly on the move. Whether by necessity or choice,
many moves are from one state to another. Oftentimes these moves not
only affect your wardrobe, but also affect your Life & Estate
Planning. If you have, will or may experience an interstate relocation,
then you should make proper plans for both the seasonal climate and the
legal climate in your new state. While the failure to properly plan for
the seasonal climate can unpleasantly impact your health, the failure to
properly plan for the legal climate can unpleasantly impact your wealth.
Domicile
The first step is to establish your domicile (permanent
residence). You must quickly and effectively establish your domicile in
one state, and one state alone. Why? Without one domicile for all legal
purposes, you may unwittingly expose your wealth to income, gift and
estate taxation in multiple jurisdictions. State governments are hungry
for tax revenues and aggressively pursue every potential taxpayer. For a
checklist to help you establish domicile, see our Pocket Protectors on
page four.
Real Estate Probate
Do you own real estate in more than one state? If so, then
probate may be required in each state to transfer title upon your death.
Should you want to avoid potential multi-state probate of your real
estate, then competent legal counsel should be sought to evaluate your
options. For example, some states permit the testamentary transfer of
real estate through special non-probate transfer deeds. Also,
multi-state probate may be avoided when title to all of your multi-state
real estate is held by a trust or other legal entity.
Community Property Caveat
For married couples, there are two property law systems in
the United States: Common Law and Community Property. The majority of
states follow a Common Law system. However, Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin follow a
Community Property system. Although the general approach to Life &
Estate Planning is the same under each system, there are significant
differences.
For example, in contrast to the Common Law system, each spouse
domiciled in a Community Property state has a vested one-half interest
in any property acquired during their marriage. [Note: An exception is
made for property either spouse receives by gift or inheritance, but
only if they carefully maintain the character of ownership as Separate
Property without commingling.] Additionally, unlike under the Common Law
system, appreciated Community Property enjoys a unique tax benefit upon
the death of one spouse.
Upon the death of one Community Property spouse, the surviving
spouse receives a stepped up basis on both the one-half interest in the
Community Property inherited from the deceased spouse and also on the
surviving spouse’s one-half interest in the same Community Property.
This means the surviving spouse will recognize no capital gains taxes on
any subsequent transfer of such Community Property up to its fair market
value on the decedent’s date of death. In a Common Law state, only the
one-half interest of the deceased spouse receives the stepped up basis.
However, even Community Property couples can forfeit this unique tax
benefit when they relocate to a Common Law state without proper
planning.
Scheduling Solutions
Whether moving to or from a Common Law state or a
Community Property state, it may be prudent for married couples to
create a formal, written Property Agreement or Memorandum with separate
schedules to identify the character of their property. These schedules
should identify their Separate Property and their Community Property, as
well as property held as Tenants in Common, Joint Tenants with Rights of
Survivorship or Tenants by the Entirety. Creating and maintaining such a
Property Agreement or Memorandum may preserve the identity of your
property.
Life & Estate
Plan Review
Generally speaking, the Life & Estate Plan you signed
in a previous domicile should be valid under the laws of the new
domicile. Nevertheless, you should have it reviewed by competent counsel
admitted to practice law in the new domicile. They may help you enjoy
some additional benefits and even avoid some peculiar pitfalls
occasioned by your relocation.
Copyright © 2005 Integrity Marketing
Solutions. All rights reserved. Some artwork provided under license
agreement. This publication does not constitute legal, accounting or
other professional advice. Although it is intended to be accurate,
neither the publisher nor any other party assumes liability for loss or
damage due to reliance on this material.
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