Relocating to a new state often creates issues affecting estate planning. Many people wonder if they need a new will or trust when they move from one state to another. Although a will or trust validly executed in one state should be valid in a different state, it is a good idea to have the estate planning documents reviewed. By addressing issues related to the relocation, an individual can avoid certain problems and maximize possible benefits.
One problem that can be avoided relates to references to another state’s laws. Often, estate planning documents reference a particular state’s law as the governing law. Many times specific state statutes are referenced. If someone dies in a “new” state, the references in the estate planning documents to the “old” state’s laws can be problematic. By executing an amendment to the trust or codicil to the will that changes the state law references to the “new” state’s law, one can avoid possible problems.
Another concern that should be addressed pertains to special health care documents. In a complete estate plan, one should have legal documents pertaining to medical treatment decisions. These documents usually consist of what is commonly referred to as a “living will” (more formally titled “Directive to Physicians”) and a durable power of attorney for medical matters. These documents are very useful if an individual becomes incapacitated and unable to make his or her own decisions. The documents allow one to specify what medical treatment he or she desires. Additionally, the living will directs the treating doctor or health care facility to allow the termination of life support if the individual is determined to be in a vegetative state without possibility of recovery.
Significantly, these documents are created by state law. Many states have special provisions related to these medical treatment documents. Although a living will or power of attorney validly executed in one state should be valid in another, the doctors or health care facilities will probably be most familiar with the documents used in their state.
Another issue related to relocating to another state that should be addressed in order to maximize potential tax benefits pertains to community property. There are ten community property states (Arizona, California, Nevada, New Mexico, Idaho, Texas, Washington, Louisiana, Wisconsin, and Alaska – with Alaska recently adopting a form of community property ownership). Many married couples relocate to or from community property states. If a married couple has moved from a community property state or is planning to move to a community property state, they should have their estate plan reviewed.
For married couples, maintaining or establishing the characterization of property as community property can be beneficial. If property is community property, when one spouse dies the surviving spouse can sell appreciated assets (at or shortly after the time of the spouse’s death) without having to pay capital gains tax. This is not the case for property owned jointly by a husband and wife that is not community property. For property owned by a husband and wife that is not community property, a surviving spouse will have to pay a capital gains tax on one-half the appreciation of assets sold at or shortly after the time of the first spouse’s death. Depending on how long the asset has been owned and the amount of appreciation and potential capital gains tax, the tax savings of maintaining or establishing the characterization of property as community property can be significant.
The preceding issues are just a few of the estate planning items that should be considered when relocating from one state to another.