Your domicile is your state of legal residence. It is your permanent home–the place to which you ultimately intend to return when you are away. Domicile generally is not determined by the length of time spent in a state. You may establish a domicile the first moment you occupy a property, yet you may spend years in a temporary home and never call it your domicile. Although your domicile is not formally registered anywhere, if you want to change it you must be prepared to convince the authorities of any state that may be adversely affected by the change.
To better understand the term “domicile,” it helps to contrast it to some other terms with which it is often confused:
Residence. This is the place you actually live. You may have more than one residence, many people do. The term “residence,” by itself, has little or no legal significance.
Statutory Residence. This is the place you live and where you are subject to state income taxes. If you are a statutory resident of one state while claiming domicile in another, your state of domicile may also require you to file a tax return there.
Why is Your Domicile Important?
Your choice of domicile is important for two main reasons: 1) it can have serious ramifications for your estate plan; and 2) it also determines your liability for state income tax.
Estate Planning. Your choice of domicile can make a significant difference in the estate you leave your heirs. Some states have estate taxes that exceed the federal estate tax credit. In addition, variations in state law can affect crucial details of your estate plan. For example, some states do not allow you to serve as the sole trustee of a revocable trust.
Also, not all states define property ownership in the same way. Some states allow married couples to own property and income separately, while others–community property states–assume you and your spouse share ownership of all assets acquired during your marriage. If you and your spouse have different domiciles, you must investigate the property laws of both states to determine if your property and income is separately owned or shared. You should also look into this if you ever move into or out of a community property state.
Your domicile also determines the jurisdiction where your will is probated. If your domicile is unclear at the time of your death, and several choices are possible, your executor should choose your domicile carefully. Once a domicile has been selected, the executor should also determine if it is necessary to probate your will there. Some states exempt smaller estates and certain property from the probate process.
State Income Tax. Your income may be taxed in your state of domicile, the state where you earned it, or both. If you change your domicile during the tax year, and both your present and former domiciles tax income, you may have to file partial-year tax returns in both states.
Establishing or Changing Your Domicile
Only two requirements are necessary to claim a state as your domicile: 1) you must be physically present in the state; and 2) you must intend to make that state your permanent home.
Physical Presence. There is no minimum residency required to establish a place as your domicile. Theoretically, only a few minutes would suffice. However, you might need to prove you resided there for several weeks or months if it is ever challenged in court. There is one exception to the physical presence rule: If you marry a person domiciled in another state, you may be able to claim your spouse’s domicile as your own even if you never visited that state.
Intent. You are not required to do any of the following, but you may wish to do some or all of them to prove your intent: open a bank account; register to vote; register your car; obtain a driver’s license; purchase property; file a legal notice in a local newspaper; and establish ties to the local community. The most important point is to demonstrate consistency. For example, if you choose Massachusetts as your domicile, it may be best not to keep your car registered in New Hampshire, your former domicile, or to vote in Maine, where you own a second home.
Smart Planning Pays Off
Since your choice of domicile can have a significant impact on your estate plan, and may also affect your state tax liability, consult a qualified tax and legal professional for assistance in determining your most appropriate course of action.