Estate Planning Considerations
Federal retirees who have two residences are advised to review their estate planning documents. If they plan to change their legal domicile, their estate planning documents will need to be updated.
The first FEDZONE column discussed financial considerations of owning two residences in retirement discussed and presented some suggestions of establishing legal domicile. One way a retiree can prove a change in legal domicile for tax purposes is to create a will in the county and state in which the retiree plans to declare primary residency. The following example illustrate:
Howard, age 68, recently retired from federal service. He has lived in Maryland for the past 40 years. He owns a condominium in Maryland which he plans to keep but is moving to Florida. In addition to changing his car registration, voter registration and other indications of intent to establish residency in Florida, Howard intends to destroy his Maryland will and create a new will in his Florida county of residence. Upon Howard’s death, his will be filed for probate in his Florida county of residence. This is the case no matter where Howard dies, in Florida in Maryland.
Other estate planning documents call for different treatment, including a financial and a medical power of attorney (POA), living will, and a health care directive. In the example above, Howard is advised to have a financial and medical power of attorney, health care directives and a living will in both states. These documents would be physically located in both states.
The writing of the financial and medical powers of attorney, a living will, and a health care directive requires the services of an estate attorney in each state in which the retiree plans to be living during retirement. It makes no difference which state is the retiree’s legal domicile. This is because each state has different requirements and rules when it comes to these estate planning documents.
There are other estate planning issues to consider when two residences are involved, especially when it comes to married individuals. A married couple are allowed different options as to how to hold title to their personal residences. For example, holding title as joint tenancy with rights of survivorship or as tenancy by the entireties. Some states allow married couples to make a timely filing for the state’s homestead exemption. A homestead exemption provides not only property tax savings, but also protection from creditors.
Some states are community property states. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Community property means that spouses who acquire property during marriage own property equally. A retired married couple establishing a second residence in a community property state needs to carefully determine how they want their newly acquired common property to be titled going forward after they establish legal domicile in that state.
Another consideration is the tax issues when a retiree dies. States may not only want to tax the resident retiree’s income while the retiree was living but may also want to tax the estate. Legal domicile may be challenged by one of the residence states upon the retiree’s death.
Needless to say, these estate planning and tax issues affecting retirees having two residences in different states require retirees to seek the services of competent estate attorneys and tax professionals in these states.