Recently there has been a lot of moving and relocating due to the current world events, so we decided that it couldn’t be a better time to discuss the logistics of domicile planning! This building wealth strategy is perfect for those who have multiple homes and may be paying a price that they don’t necessarily have to! From gift taxation to income taxes and beyond this strategy can help lead your current and future finances into a place of security for you and your family. Let’s dive deeper into a little-known tactic that can make all the difference!
What is Domicile Planning?
For many people, your place of residence is the place where you claim domicile, which dictates the state taxes you pay, real estate regulations, and other provisions. For some, who have the ability to own multiple homes in different states, there are important factors to consider when identifying the ability to claim domicile for the benefit of taxation and financial leverage.
Most individuals do not even consider this to be an opportunity within their financial life, but those who do can see leveraged tax benefits which may impact their overall financial health. States dictate state taxes for those who claim domicile within their borders and in turn, you can expect to abide by this state’s laws for income taxes, gift taxes, estate taxes, and potentially other areas of interest including trust and estate laws.
For example, let’s say that you own two homes- one in Florida and one in New York. You are currently from New York, so as it stands you will currently be claiming domicile in New York. Currently, you pay federal income tax, New York state income tax, New York estate taxes, and any other taxation based on New York State Laws (There’s a handful!).
With the process of domicile planning, you can potentially have the ability to control how income is taxed whether it be from a gift or from ordinary income, the ability to increase protection from creditors and assets, estate taxes, and much more!
Ah! The benefits of knowing state laws and creating a plan that allows you as the hard worker you are, to create an intelligent way to protect your assets, implement tax planning strategies, and truly grow your wealth in a way that ensures your family will benefit many years to come!
When identifying the place of domicile for an individual there are a set of variables tom consider in a legal manner which dictates where the individual claims “domicile” as oppose to “residency”. In the section below we’ll discuss the difference between these two terms and how the legalities between them allow for an advantage to those who own multiple homes in different states.
Can You Benefit From Domicile Planning?
Find Out By Answering The Questions Below!
Domicile Vs. Residence
Simply put, the terms “domicile” and “residence” are actually defined differently, and because of this, you can see an upside when it comes to legal and tax purposes.
Claiming “domicile” in a state means that you have the intent to live in this place and you are to abide by this state’s laws. States tend to agree that where an individual claims domicile is where their fixed, permanent residence truly is. Where a person claims domicile is where they actually intend to live, regardless of owning a second home and spending periods of time in a different location, their true residence is in the place of domicile.
Claiming “residence” in a state simply means that this is a place where an individual ordinarily lives. In this case, the person does not permanently live here or intend on claiming true residence here.
How To Establish Domicile
There are a variety of reasons why an individual may want to change their domicile including business, tax laws, health reason, or pleasure- but in any case, this change must be genuine.
In order to establish a new domicile, the obvious need is to have a home in two location withing different states with varying state laws – New York and Florida would be a great example and is among the most common.
Claiming domicile in one location is based on where the intent of permanent residence is created. In order to demonstrate intent, a person may want to perform a handful of tasks including spending time in this location. Some important areas to consider when changing domicile are below:
- File a declaration of domicile
- Change voter registration
- Obtaining a place of residence
- Registered Insurance(s)
- Paying state taxes
- Financial accounts
- Charitable giving locations
And many other areas!
How To Properly Execute a Domicile Planning Strategy
We believe that seeking financial assistance in this manner can help speed up the process of changing domicile while also remaining compliant in the interim Please seek financial advice from a financial professional if you’re looking to learn more or take the next steps!