Interstate Moves in Estate Planning

IS YOUR ESTATE PLANNING STILL GOOD IF YOU MOVE TO A DIFFERENT STATE?

Practicing estate planning law in Western North Carolina can be very busy. There has been a continuous influx of people moving to our beautiful area from all over the country, and indeed, the world. One question clients often ask, however, is whether they might actually need a new estate plan, or update an old estate plan drafted in the state from which they moved. Likewise, many clients ask when they sign a plan whether they might need to have it updated if and when they move to a new state later. This is a common question and the answer generally is, yes, you should definitely have your plan reviewed.

The general rule between states is that so long as the plan was valid in the state where you signed it, then it should be valid and enforceable in the new state. States owe that full faith and credit between each other as citizens move about. However, that definitely doesn’t make for easy administration when one state is having to decipher the plan details that were born in another.

States may well have broad similarities in their requirements to make legal documents valid and enforceable, but there are many subtle differences that just add to the complexities of trust and estate administration when one is using State X citations and formats in State Y. Those differences revolve around matters such as taxes, inheritance, and assets held in a marriage.

At a base level, an estate planning attorney should review your documents to make sure your will, trust, powers of attorney, and health care documents even comply with the new state’s laws. If they do not, even if the documents are ultimately valid given their enforceability under the old state’s laws, there can be confusion that hinders efficient administration of those documents. Remember that the old documents contain statutory citations and formats that may not precisely comport with the new state’s laws and forms, and that can adversely affect how your property is taxed, how it is distributed, and how your financial and health care agents’ decision-making authority is treated. Updating your plan soon after an interstate move is a prudent venture that will save your family stress, time, and expense.

First and foremost, you should establish which state is your domicile for multiple reasons. Different states have different state income and estate tax laws. States also may have different requirements in what is required to actually establish domicile. Are you there for six months and a day or did you merely purchase a vacation property there, or perhaps even set up an LLC in that jurisdiction? Speak with an attorney to see exactly what qualifies you to establish domicile and take advantage of the new jurisdiction’s laws.

From there, it is important to understand that you may need to designate people within that state’s boundaries to act as agents, trustees or executors. Many states have rules on who may act in your representative capacity and whether they must be located in the state, or whether they can live out of state and hire legal representatives to act for them in administering estate and trusts, financial powers of attorney, health care powers of attorney, or receive service of process for businesses.
Marital property may also be treated differently from state to state. Your new state may be a separate property state or a community property state. Or, perhaps, be a state where one can opt-in to community property status. This concept extends well beyond considerations in divorce and equitable distribution; the differences can have a tremendous advantage or disadvantage when calculating step-ups in cost basis on appreciating assets for your inheriting beneficiaries.

You should also compare how exactly your assets, both separate and marital, are titled. Many states allow titling by married couples in a tenancy by the entireties, which offers not only survivorship outside of probate but also creditor protection against judgments entered against one spouse but not the other. Different types of assets can qualify depending on the state, or other states may not offer this at all. Furthermore, if property remains in the state from which you left, will there have to be ancillary probate if it is still owned in your name at the time of death in the new state? If it isn’t retitled to a probate-avoiding trust or entity, the answer may be yes, which would require your executor to open multiple probates in multiple jurisdictions.

Lastly, and the most common question, there is the matter of taxes. There is a Federal tax, but a handful of states also impose a tax at the state level, and that tax can vary greatly in its rate and applicability. North Carolina has no state inheritance tax; however, North Carolina was at the forefront very recently before the U.S. Supreme Court on how, when and why trusts may be subject to its state income taxes. It is important to look at exactly where the situs of the estate or trust is set, where the beneficiaries live, and where the trustee or executors are operating in order to determine which taxes might apply and what are the risks and rewards of that jurisdiction’s tax laws.

Overall, when I am asked whether we really need to “take a look at” an out of state plan, or whether a plan I design will “work” if someone is to move, the answer is invariably that we should conduct a review. From that review, we can decide whether the differences merit a new estate plan. I hesitate to amend old plans, as I caution against applying band-aids to actual problems. My clients always prefer clean, efficient documents that they know will work when needed. The capable and trusted attorneys at Strauss Attorneys are more than happy to help in that respect.