The importance of domicile in asset preservation planning.

• Author: Wolf, Jerome L.

A debtor, regardless of state of residence, can seek protection from his or her creditors in the federal bankruptcy courts. However, the state in which the debtor resides or, more accurately, is "domiciled" will determine which assets the debtor may keep and which must be turned over as part of his or her bankruptcy estate.

From a common law perspective, a person may have more than one place of residence, but only one domicile. Generally, there is the "domicile of origin," which is the permanent residence of a person's parents; "domicile by operation of law," which is the place the law attributes to a person, independently of his or her chosen domicile, such as a domicile arising from marriage; and "domicile of choice," which is the permanent place a person has chosen as the place to which he or she intends to return, and which displaces his or her previous domicile.

In Florida, the terms "domicile" and "residence" are synonymous. Under subsection 731.201(11) of the Florida Statutes,"domicile" means a person's usual place of dwelling; similarly, under subsection 731.201(30), "residence" means a person's place of dwelling. The courts have also construed the terms similarly:

The rule is well settled that the terms residence, residing or equivalent terms when used in statutes or actions ... are used in the sense of legal residence; that is to say the place of domicile or permanent abode as distinguished from temporary residence.

A person may have several temporary local residences but can have only one legal residence. A legal residence, or domicile, is the place where a person has fixed an abode with the present intention of making it their permanent home. (1)

The determination of a person's domicile is important because it governs to whom he or she may owe income tax; whether all or any portion of the estate will be subject to transfer tax; whether all or any portion of property is exempt from ad valorem tax; who may inherit his or her estate; who may administer that estate; who may determine his or her right to live or die; and the rights that creditors may have against that person and estate.

The U.S. Supreme Court has ruled that the question of domicile is, in many cases, for the states to decide, and that it is not unconstitutional for more than one state to claim a decedent as a domiciliary of that state for purposes of imposing local estate taxes. (2)

In determining domicile, there is an objective test, a residence or "permanent place of abode," and a subjective test, an intention to abandon the former domicile and acquire a new one. As stated by one court: "Where a good faith intention is coupled with an actual removal evidenced by positive overt acts, then the change of residence is accomplished and becomes effective. This is so because legal residence consists of the concurrence of both fact and intention. The bona fides of the intention is a highly significant factor." (3)

In determining intent, objective standards have greater significance than other self-serving statements and declarations. An excellent guideline for analyzing domicile issues has been promulgated by the New York State Department of Taxation and Finance. (4) Although not binding in Florida, the department's guidelines point to the factors that likely would be considered by a Florida court asked to rule on the issue of domicile.

The New York Department of Revenue divides the factors used to determine...