For Washington residents facing the possibility of a sizable estate tax bill, establishing residency in a different state may be worth considering, particularly for those who already have a second residence in another state. Establishing residency in another state may provide a tax advantage for some, but for others, the burdens of moving to a new home state ultimately override the burden of the Washington estate tax.
Washington imposes estate tax on all Washington residents’ estates that exceed $2.193 million per individual, at a maximum rate of 20%. A resident is defined as “a decedent who was domiciled in Washington at time of death.” Whether a decedent was domiciled in Washington at the time of death is therefore crucial to determining whether a decedent’s estate will be subject to Washington’s estate tax.
In general, a person may theoretically only have one domicile. However, the United States Supreme Court has stated that neither the Fourteenth Amendment nor the full faith and credit clause require uniformity in the decisions of different state courts with respect to an individual’s place of domicile. As one extreme example, the president and founder of the Campbell Soup Company was determined to be domiciled in both Pennsylvania and New Jersey at the time of his death, which resulted in his $115,000,000 estate being taxed in both states. Accordingly, the critical question is: how do you establish your domicile in another state?
Domicile has two “indispensable elements”: residence in fact and the intent to make a place of residence one’s home.
Where domicile is at issue, the party seeking to establish domicile in a particular jurisdiction bears the burden of proving by substantial evidence his or her intent to remain in that jurisdiction permanently.
Because each case presents its own unique set of circumstances, there are no factors which are consistently held to be conclusive of an intent to remain. The following serves only as a list of factors that courts have found to be persuasive of the intent to remain, none of which are conclusive to establish domicile:
- A genuine, good faith declaration of intent to remain permanently;
- Registering to vote in the state of desired domicile;
- Genuinely moving to one’s out-of-state residence, for example, by selling the primary residence;
- Including the intended state of domicile on legal instruments, such as a will or trust.
Additionally, the Washington State Department of Revenue has compiled their own list of factors “which are considered when determining domicile,” which can be found on the DOR’s website http://dor.wa.gov/content/FindTaxesAndRates/OtherTaxes/tax_estatetaxOOS.aspx.
These factors include:
- Decedent’s address reported on the federal income tax return;
- Where the decedent is registered to vote;
- Location of property owned by the decedent;
- Decedent’s citizenship;
- Length of residency of the decedent; and
- Decedent’s business or social ties to the community.
Although some of the factors overlap, as indicated above, each case turns on its specific facts. Thus, in order to establish that you are domiciled in another state to avoid Washington estate tax, you must consider if a court, looking at your specific facts objectively, would find that you physically were present in that state and had a genuine intent to remain there permanently.