Moving to Another State: What You Should Know before Calling a Realtor
Financial Planning
By Charles A. Cunningham, CLU®, Partner
It’s a relatively common story. People retire and begin to think about downsizing to a more affordable and/or manageable residence. Often, that residence may be in a different state. The reasons for moving may range from better weather to closer proximity to children and grandchildren. For many people, however, financial issues are a major motivating factor. They are no longer tied to a certain state because of their work and wish to move to a state with a lower cost of living and perhaps even no income or estate tax.
Recently, this concern has become more acute. The Tax Cuts and Jobs Act of 2017 may have reduced marginal tax rates, but it also placed a $10,000 limit on the state and local tax deductions you are allowed to take on your federal tax return. That might cover only a fraction of your property tax if you live in certain parts of the New York metropolitan area or other high-tax jurisdictions.
If you long to be closer to family, great. If you’re fantasizing about a sunnier climate or a new adventure for the next chapter of your life, also great. If you hope to pay less in taxes or leave a larger legacy to your loved ones, how much will you gain by disrupting your life and changing your residence to a state that may be thousands of miles away? It’s important to try to quantify the financial benefit you’ll gain. If that benefit is truly meaningful, you have a simpler decision to make. But once you make it, make sure you adhere to the following ground rule:
Becoming a resident of your new state is not enough. You must show that you intend to be domiciled there.
What does domicile mean in legal terms? Many states define it as the place where you make your permanent home – a place you intend to return to from wherever you may travel.
Sounds simple enough, but problems can often arise if you continue to maintain a residence in your previous state or return there often for business purposes. In other words, you could be taxed by both your new state and your old on all your income.
So how can you avoid this scenario and establish a domicile in your new state without being challenged by your old one?
- Spend the majority of your time in your new residence. That means at least 183 days per year – preferably more. Document your daily location with a spreadsheet or perhaps an app like TaxBird or Moneo.
- Register to vote in your new state.
- Obtain a new driver’s license and registrations for your cars and other vehicles.
- Apply for a new passport, even if your old one is still valid.
- File a declaration of domicile in the county of your new residence.
- Update your address on the bank and other financial documents.
- Make sure your will and other estate plan documents comply with the laws of your new state. You might even consider executing new wills and estate documents in your new state.
- Direct all mail to your new home, including utility bills, magazines, etc. File a change of address form with the Post Office and notify everyone from whom you receive mail.
- Change professional licenses to your new state.
- Join local clubs and social organizations.
- Change doctors, and if you have pets, change their veterinarians, too.
- Move personal items like artwork, heirlooms, and photo albums to your new home. You want to be able to prove that it is indeed the home you plan to return to after traveling out-of-state. One well-known case was judged in the defendant’s favor by the fact that he moved his pets to his new home.
- If you do maintain a home in your previous state, you may be challenged if that home is more elaborate than your new one. If you still conduct business in your old state, it might be advisable to spend less time there.
Your Lenox team will work closely with your attorney and accountant to help you cross the t’s and dot the i’s of any move you might be contemplating. You can also look to them for assistance in determining the potential financial benefits you will accrue by relocating – benefits that may include lower day-to-day costs, as well as tax savings.
Which States Offer the Biggest Financial Benefits?
According to AARP, the following states impose no income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
New Hampshire also has no income tax, so it doesn’t tax retirement distributions. It does, however, tax interest and dividends, which many retirees depend on for retirement income.
As for estate tax, 13 states (including DC) currently impose an estate tax on estates valued at over their individual exemptions2. These include:
| State |
Exemption |
| Connecticut |
$12,920,000 |
| District of Columbia |
$4,528,800 |
| Hawaii |
$5,490,000 |
| Illinois |
$4,000,000 |
| Oregon |
$1,000,000 |
| Maine |
$6,410,000 |
| Mayland |
$5,000,000 |
| Massachusetts |
$1,000,000 |
| Minnesota |
$3,000,000 |
| New York |
$6,580,000 |
| Rhode Island |
$1,733,264 |
| Vermont |
$5,000,000 |
| Washington |
$2,193,000 |
In addition, six states impose an inheritance tax on the people inheriting your estate1. These include: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The amount of tax depends on the size of the state’s exemption and how your heirs are related to you. Again, consult with your Lenox team for more information.
1Connecticut is the only state with a gift tax on assets you give away while you’re alive. If you made taxable gifts during the year, state law requires that you file a Connecticut estate and gift tax return to identify such gifts. However, taxes are due in 2023 only when the aggregate value of gifts made since 2005 exceeds $12.92 million. The state imposes estate and gift taxes at a flat 12% rate.2
1 https://www.aarp.org/money/taxes/info-2023/states-that-do-not-tax-your-retirement-distributions/
2 https://www.kiplinger.com/retirement/inheritance/601551/states-with-scary-death-taxes
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