Considerations for Changing Your Residence or Domicile

Posted by Cheri Dorsey in Estate Planning, Tax Planning
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The COVID-19 pandemic has made remote work more accessible and led many people to reevaluate their priorities and rethink where they want to spend their lives. Some people want to live closer to family or find more affordable housing, while others seek a higher quality of living or more work-life balance. Whatever the reason may be, an influx of Americans have been migrating out of big cities and relocating down south.

In recent years, certain large corporations have expanded their presence in states such as Texas and Florida. Many of our clients are making their way down to Florida—hence why our very own Tom Sessa is now licensed to practice law in the sunshine state!

Relocating to another state can open exciting new opportunities for you and your family. However, the process can also become quickly complicated by legal matters, particularly in the realm of estate planning. Below, we have outlined a few considerations to keep in mind for those looking to change domicile, with a specific focus on moving in or out of the state of Maryland.

The Legal Distinction Between a Residence and a Domicile

The simplest way to determine the difference between a piece of property as a residence or a domicile is to view a domicile as a person’s true, fixed, and permanent home. Typically, “residence” is used to refer to a person’s real property and is not limited to a person’s permanent home but may include vacation homes and seasonal properties. On the other hand, a person’s “domicile” is a result of that person’s intent – that one place be their principal residence and where they intend to return – and by taking certain actions which provide support and evidence of their intent. Under federal and Maryland law, an individual may have multiple residences or be a resident of multiple states but can only have one domicile.

The distinction between domicile and residence is important largely due to the various tax implications – both income taxes and estate taxes. For example, a person is considered a “resident” of Maryland if they are domiciled in the state on the last day of the taxable year, or if the person has a residence in the state and is physically present within the state for more than six months of the taxable year (at least 183 days).

Establishing a New Domicile

To establish a new domicile, courts look at a person’s intention and the actions they have taken to further that intention. For example, in Maryland, courts have determined that for an individual to establish a new domicile in the state, they must be physically present in the new domicile for an extended period and establish new ties with the area. Voter registration, active business involvement, family ties, and material connections to the area are all important factors that Maryland courts consider when a person establishes a new domicile.

Once a domicile is established in a given state, it survives the purchase of any new residence or property. Under Maryland law, an individual’s domicile continues until superseded by their intent and action to establish a new domicile and sever ties with the former domicile by taking active steps to prove their intent to treat their new residence as their new domicile and permanent home. To establish a new domicile in a different state, individuals may want to consider the following:

Filing a formal declaration of a new domicile
Selling or leasing the property located in their former domicile
Physically transferring all “near and dear” material possessions to the new domicile (heirlooms, furniture, high-value items)
Obtaining a new driver’s license/ID card reflecting the address of the new domicile
Registering vehicles with the address of the new domicile
Updating voter registration
Using the new domicile address in new contracts, deeds, passports, insurance policies, and all other legal documents and updating any current documents to reflect the new address

How Changing a Domicile or Residence Affects an Estate Plan

Some individuals may intentionally change their domicile as part of their overall estate plan – for example, they may move after retirement to spare beneficiaries from state-specific estate or inheritance taxes or to minimize their own income taxes and preserve their wealth in retirement. Regardless of the reason for a change in domicile, unless the person takes the necessary actions to prove their intent, a court may not agree that a new domicile has been established leading to frustration and potential tax consequences. When we petition a court to open a new estate for administration, the court has the authority to determine whether the decedent was properly domiciled within the state, or whether the estate should be opened elsewhere.

As is true for other major life changes, it is important to review your estate plan after establishing a new domicile. After establishing a new domicile, a person will likely be required to seek new legal representation from an attorney who is licensed to practice in that new state. While documents drafted and executed while you were domiciled in your former state will still be valid, there are often references to specific state laws which should be updated to avoid confusion. Additionally, there are often tax clauses and provisions which may need to be changed or updated in order to reflect the laws of your new domiciliary state, especially when your estate plan includes one or more trusts which could continue for years after your passing.

Contact our office today for more information on establishing a new permanent residence, as well as further guidance on all questions related to residency, properties, and tax-saving strategies for your estate plan to help benefit you and your family for years to come.

At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estates and trusts for their specific needs and desires. If you have questions, please contact us at (443) 589-5600.

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