Say you live here in New York and made significant plans to avoid probate. You have a will, own a business that you pass on and even set aside significant assets for your grandchildren. You worked hard to put your financial house in order. Now you find out that you have to move to another jurisdiction for work and will likely be there for some time. More likely than not your will and other plans to avoid probate will survive as legally enforceable documents in the new jurisdiction. Nevertheless, you worked hard for your plans to be finalized and do not want to live with the idea that “more likely than not” your plans will be followed. As such, it is always best to check with a local estate planning and review your plans.
FACTORS TO CONSIDER
There are a few things to keep in mind when it comes to decisions on where to live and changes in law and nuances on how to handle the change. Most laws are relatively uniform throughout the country. Procedure may be different but substantive laws are similar in many cases. Except when they are not. Some issues have two different ways of handling things. A good example is common law states versus community property states. Community property states are generally Rocky Mountain states and west (Louisiana and Wisconsin are the exceptions). There are some important differences in their approach to passing on assets between the two camps. Another factor to address is that you need to clarify your residence or domicile or you may end up paying taxes in two different states, as what happened to the heir to the Campbell’s soup fortune in 1939.
COMMUNITY PROPERTY, BASIS POINTS AND CAPITAL GAINS
If you acquired property during the life of the marriage in a common law state, it is not necessarily part of the marital estate. The normal, almost default form of ownership of significant assets is tenancy by the entireties. This seemingly simple issue has important estate planning implications. Most importantly, the whole of the basis in the property in issue of the community property steps up from the original basis cost to the current market value. Half of the difference between original basis and the new, higher basis must be accounted for in the decedent’s estate, which may or may not have tax implications depending on many factors. What is sure is that the surviving spouse will have lower capital gains tax liability, due to the new, higher basis amount when he or she sells that property. Compare that with common law states approach, which only allows for the deceased spouse’s basis to step up.
DOMICILE
Different states have different estate taxes thresholds. Some states tax the estate of the deceased while others tax the inheritance that heirs receive. All states allow spouses to inherit tax free. The federal government taxes any estate above five million dollars. Some states have higher thresholds and others lower.
Gifting, trust creation and asset allocation or financial planning are all legal and appropriate estate planning tools. Only with the assistance of a trusts and estate attorney can you assure yourself that all of your planning will not be for naught.