Domicile is one of those words that courts and lawyers toss around and expect people to understand. In fact, its meaning can be tricky.
Simply put, your domicile is your home—the state you consider your permanent place of residence. If you aren’t living there right now, then it’s the place to which you intend to return and make your home indefinitely. You can have more than one residence, but only one domicile.
Factors That Affect Domicile
Some factors that indicate where you’re domiciled include where you live, vote, register your car, and where your spouse and children live. But domicile is fundamentally a question of your intent—which state do you consider your permanent home?
Example: Harry and Simone have lived in New Jersey most of their lives. They’ve owned their New Jersey house for 30 years, their tax returns list their New Jersey address, and their wills declare that they’re residents of New Jersey. But they now spend six months of the year in Florida, own a house in a resort community there, vote there, and have a car registered there. Where is their legal domicile? If there’s a legal battle, the outcome will depend on evidence of which one they consider their permanent home. Unless they’ve transferred most of their important activities (see below) to Florida, there’s probably not enough evidence to show that they intended to change their domicile from New Jersey to Florida.
When does the question of domicile arise? Typically, it comes up after a state’s taxing agency (department of revenue or taxation) rules that someone is domiciled in the state. A taxpayer (or the taxpayer’s surviving family members) who wants to dispute that determination must go to court.
Why Domicile Matters
Your domicile can have an effect on many legal issues, especially taxation.
State income tax. Most states impose an income tax on people who live or work in the state. If you’re domiciled there, you pay tax on all of your income; if you’re not, you pay tax only on income derived from sources in the state. (Even if your domicile is elsewhere, however, you may be assessed tax like a domiciliary if you are a “resident” under state law.)
State estate tax. https://www.nolo.com/legal-encyclopedia/state-estate-taxes.html Fewer than 20 states impose their own estate tax—that is, a state tax on assets left at death. If you’re domiciled in one of these states (such as New York or New Jersey), your survivors may end up paying a tax bill that wouldn’t be due if your legal domicile were in a non-taxing state (such as Florida or Arizona).
Probate. If surviving family members need to start a probate court proceeding to distribute your assets to the people who inherit them, they must begin it in the state (and county) where you were domiciled at your death.
Divorce. Domicile isn’t as important for divorce as you might think. You can get divorced in a state even if you aren’t domiciled there. You only need to meet the state’s residency requirement—a few months to a year, in most states—before you can file for divorce there.
Establishing a New Domicile
If it isn’t clear which state is your legal domicile, decide which one you want it to be, and then take steps to make sure that state will legally be considered your domicile.
Owning a home in a state, or spending most of your time there, isn’t enough to make it your domicile. Because the crucial factor is your intent, take every opportunity to show, or declare, that the preferred state is your permanent residence. For example, it’s important to use your in-state address for your:
- tax returns
- insurance records (homeowner’s, car, life)
- credit cards
- Social Security
- bank and brokerage accounts
- membership organizations
In your estate planning documents, including your will, living trust, powers of attorney, and healthcare directive, you can also make an explicit statement that the preferred state is your domicile. Most wills, for example, begin with a statement of domicile. Make sure the documents comply with the preferred state’s laws.
Here are some more steps you can take to show that your life is centered in the preferred state:
- If the state requires special tax returns—for example, Florida requires intangible personal property tax returns—file them.
- Register to vote there.
- Get a driver’s license in the state.
- Register your vehicles (and your dog, if you have one) there.
- Open checking and savings accounts and a safe-deposit box in the state.
- Get a library card there.
- Join a gym or social group.
- Consult local professionals such as doctors, dentists, lawyers, tax preparers, and accountants.
- Contribute to or volunteer with local charities.
- Buy a home there and claim it as your homestead for property tax purposes.
- If the state allows it, file a statement of domicile with the county clerk.
It’s not enough to take these kinds of steps to establish a new domicile; you must also show that you intended to give up the old one. So these actions are also important:
- If you must file a state income tax (or other) return in another state (for example, because you have income there), file as a nonresident.
- Sell your home in the state where you used to live or rent it out when you’re not there.
- Don’t spend a lot of time in a state that was formerly your domicile.
- Don’t work or run a business in a state that you don’t want to consider your domicile.
- Move valuable items, and items of personal significance, out of your former residence.
- Cancel memberships (country club, gym) in the old state.
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