Moving an elderly relative? Think about state taxes

movingIt’s a common scenario: An elderly relative is no longer able to live alone, so family members sell the relative’s house and have the relative start living with them or in a nursing home or assisted living facility that’s closer to the family.

One thing you might not consider during this stressful process is that if the relative moves to a different state, you might have just changed the person’s official state of residence for tax purposes. And that could have a significant effect on his or her estate plan.

For instance, if someone moves from a state with no state estate tax to a state with such a tax, and he or she passes away, an estate tax might be owed on the value of the person’s assets – even if he or she lived in the new state for only a very short time.

This is a significant danger because, while the federal estate tax generally doesn’t apply to estates unless they’re worth well over $5 million, many state estate taxes start at a much lower figure.

Such an outcome could even lead to friction between heirs. For instance, suppose the relative’s will leaves one child certain specific assets and the other child “everything else.” The relative may have set things up so the children would receive more or less equal bequests. But under the law, if a state estate tax is suddenly due, all of it will come from the share of the child who gets “everything else.” This could upset a careful estate plan and create family disharmony.

If you’re thinking of moving an elderly relative to an out-of-state home or facility, it’s a good idea to speak with an estate planner about the change. There might be ways to avoid having the relative be treated as a resident of the new state. (Of course, you might also discover that there are tax advantages to having the relative be treated as a resident of the new state, and you’ll want to plan for that as well.)

If you have any additional questions  or would like to schedule a consultation, please feel free to contact us at your earliest convenience.