Many retirees are fleeing high-cost states such as Illinois, New York, and California for greener pastures like Florida. Are you contemplating a similar change?

State income, property, and sales taxes are common payments that can take a bite out of your wallet. But another often-overlooked tax — state-based estate tax — can also reduce the amount of wealth to pass on to your loved ones.

Twelve states and the District of Columbia have an estate tax that applies at death. They are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Other states such as Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have an inheritance tax. Maryland uniquely has both an estate tax and an inheritance tax.

It is common for families to have more than one home in multiple states. If you split your time between a high-tax state and a low-tax state, one common question is, “Can I change my tax residency to Florida or another no-estate tax state to save taxes for my family?” The answer is – it depends.

The key factor is what your tax domicile is. Domicile is largely based on your intent and is established when you have a physical presence and intend to remain in a location indefinitely or return to it after leaving it temporarily. In other words, your fixed, permanent, and primary home.

What are some things you can do to help support your domicile?

  • Get a new driver’s license or other permits (firearms, hunting, fishing, etc.)
  • Register your vehicles
  • Register to vote and actually vote
  • Update your estate planning documents
  • File a written declaration of domicile
  • Notify the IRS of your change of address (File Form 8822); Use your new address in filing your Federal income tax return with the IRS; and, if possible, file a final tax return in your state of previous domicile
  • Use your domicile’s mailing address on all correspondence
  • Update the addresses on your brokerage and financial accounts to your new address
  • Notify the Social Security Administration of your change of address
  • Use your new address for your passport and credit card
  • Register your new address with your insurance companies and Medicare
  • Change your phone/cell phone numbers to your new area codes
  • Spend most of your time there

Another important aspect of moving to a new state is comparing the cost of living in your current resident state with the desired state (e.g., housing costs, healthcare/long-term care costs, market prices for goods and services, etc.). Making a decision can be daunting, so it is important to work with your financial advisor, accountant, and attorney to help determine how a change will affect you.

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