8.3 Assets Owned in Other Jurisdictions

• Library: Estate Planning in Virginia (Virginia CLE) (2018 Ed.)

8.3 ASSETS OWNED IN OTHER JURISDICTIONS

8.301 Introduction. As part of the process of obtaining the information necessary to prepare a thorough and appropriate estate plan, the attorney must determine whether the client owns property in more than one jurisdiction. ²⁶¹ The instances in which multi-jurisdictional planning is important have increased along with the increase in societal mobility and the trend to begin the establishment of a retirement residence in one (usually warmer) state while still residing and being actively employed in a "home" state.

[Page 724]

With a client who owns property in more than one jurisdiction, one key determination is the client's state of "domicile." If it is possible that more than one state could claim to be the client's domicile, the client may be faced with a competition among two (or more) states for receipt of the client's income, gift, and estate taxes. ²⁶² In addition, upon the client's death, it may be necessary to conduct an estate administration in both the client's "home" state and the states in which the client owned real or personal property (referred to as an "ancillary administration"). Proper planning may preclude both the need to address competing claims for the client's taxes and the need for an ancillary administration.

8.302 Domicile and Actual Residency.

A. In General. To avoid simultaneous income and estate taxation in two or more states, it is critical to establish one state as the state of domicile and to avoid acquiring characteristics that could cause another state to claim that the client's domicile had been transferred or extended to the second state. In Virginia, there are two classes of residents, a domiciliary resident and an actual resident. ²⁶³ Both a domiciliary resident and an actual resident are subject to Virginia taxation and are considered Virginia residents. The determination of domicile and actual residency is a question of fact.

1. Determining Domiciliary and Actual Residency; Dual Residencies; Aliens; Mixed Residencies. In Virginia, the domiciliary residence of a person is generally defined as a person's permanent principal residence to which that person intends to return even if he or she is residing outside of Virginia. ²⁶⁴ It is their legal residence. An actual resident is a person who, in the aggregate, maintains a "place of abode" in Virginia for 183 days or more during a calendar year irrespective of their intention to claim a domicile outside of Virginia. ²⁶⁵ A domiciliary resident and an actual resident are both subject to Virginia taxation as residents and must report all income from all sources.

[Page 725]

The majority of Virginians are both domiciliary and actual residents. There are several scenarios where individuals find themselves in a dual status situation. A common example of individuals with dual status of residency is students domiciled in another state who are enrolled in Virginia schools and are physically residing in Virginia for more than 183 days. They are considered actual residents of Virginia despite their intention to maintain their domicile in the other state. Other examples of dual status scenarios are Virginia domiciliary residents enlisted in the United States military who are deployed outside of Virginia, Virginia domiciliary residents studying at out-of-state schools, and Virginia domiciliary residents employed abroad. The individuals in these scenarios continue to be considered domiciliary residents of Virginia despite their physical presence in another state or foreign jurisdiction. Resident aliens are subject to the same residency provisions with no special status for exemption from filing Virginia tax returns.

Once a domicile is acquired, it is presumed to continue until a new domicile is established. A part-year residency is established when individuals demonstrate their intention to abandon Virginia as their legal domicile. If an individual moves out of Virginia but returns within six months, he or she will not have sufficiently demonstrated an intention to abandon Virginia and will still be considered a Virginia resident for tax purposes. A husband and wife may have different domiciles, necessitating the filing of separate returns. ²⁶⁶

2. General Proof of Domicile. When determining domicile, courts generally look to the place where the person maintains his or her primary business and social contacts. The following factors are typically examined by courts trying to decide whether a person's residence has been elevated to the status of his or her "domicile":

a.	The aggregate number of days spent at the residence during the year;
b.	The activities carried on at the residence;
c.	Who lives with the person at the residence and the relationship among the inhabitants;

[Page 726]

d.	The nature of the property kept at the residence;
e.	The person's attitude toward the residence;
f.	The person's intention, or lack of intention, to return to the residence when absent; and
g.	The person's attitude toward other places with which contact has been made. 267

B. Changing Domicile.

1. In General. In the event of a change in his or her state of domicile, the individual must take specific affirmative actions to prove that a new domicile has been established and that the old domicile has been abandoned. This is especially important in cases where the individual intends to maintain a residence in the old domiciliary state. The individual will carry a significant burden in trying to establish not only the intention but the actual accomplishment of a change in domicile. The degree to which personal, business, financial, and social contacts are established and maintained in the new state will determine whether this burden can be carried successfully.

2. Actions in New State. The following actions taken in the new state of domicile will evidence an individual's intention to establish domicile in that state:

a. Physical Presence. Perhaps the most important action a person can take to establish domicile is to maintain a significant physical presence within the desired state. In many states, a person is presumed to be domiciled in a state if he or she maintains a presence in the state for a statutorily prescribed minimum number of days in a calendar year. ²⁶⁸ Individuals who are physically present in Virginia for 183 days or more are considered Virginia residents. The 183 days do not have to be consecutive.

[Page 727]

These kinds of statutory tests can create problems if a person maintains a presence in two states whose statutes each prescribe a minimum number of days and if the individual exceeds the minimum in both states. In such an instance, clear documentation of the factors discussed below is vital.

Virginia and many other states provide that an individual who is a resident in a nursing home is not presumed to have established domicile where the nursing home is located, unless there is evidence to indicate this was the individual's intent. ²⁶⁹

b. Property. It is extremely helpful to purchase (or at least rent) real property in the new state and to occupy the property as often as possible. It is also helpful if property of a personal nature (such as clothing and photographs) is moved to the new residence.

c. Tax Returns. All federal income, gift, and payroll tax returns should be filed at the IRS service center of the desired domicile. Of course, this is only persuasive if the returns designate the new domicile as the individual's address for federal income tax purposes and if the IRS service center is different for the new state than it was for the old state. IRS Form 8822 should be filed to report a change of address to the IRS. A resident return should be filed with the state of desired domicile. The possible need to file a local income tax return should not be overlooked.

d. Driver's License. The individual should obtain a new driver's license and re-register automobiles in the desired state. Note that the driver's license from the old domiciliary state usually has to be relinquished when the new license is obtained.

e. Bank Accounts. Checking and savings accounts should be opened in the desired state and used for most banking. Consideration should be given to transferring brokerage accounts to a broker in the desired state.

f. Mailing Address. A court will want to see an affirmative effort to change the mailing address on record with credit card compa-

[Page 728]

nies, government agencies (such as the IRS, the Social Security Administration, and the United States Post Office), and magazine publishers.

g. Voting. Registering to vote in the city or county where the new residence is located is important. Actual voting is also helpful.

h. Declaration of Domicile. Some states permit an individual to express an intent as to domicile by executing and recording a declaration of domicile. ²⁷⁰ Such a document is obviously self-serving and will be considered with all other evidence produced to establish the individual's domicile.

i. Memberships. Establishing club and church memberships in the city or county where the new residence is located is helpful.

While none of the above actions will conclusively establish domicile, the cumulative effect of as many of these actions as possible will go a long way toward establishing the new state as the individual's state of domicile.

3. Actions in Former State. Actions taken in the old state of domicile that correspond to the actions listed above are critical to showing that domicile in the old state has been relinquished.

It is obviously important to maintain a physical presence in the old state that is less than the statutorily prescribed minimum. Bank and brokerage accounts in the old state should be closed or at least drawn down. A resident tax return should no longer be filed in the old state. The individual should affirmatively request to be removed from the voter registration rolls...