Has the new year got you examining your life and wondering if it’s time to live somewhere new?
If you are thinking of moving, you’re not alone. Roughly 10% of Americans move every year. The average American moves approximately 12 times during his or her lifetime.
Moving usually means far more than just acclimating to, among other things, different neighbors, new work environments and altered routines. Long before you pack up your old home to head to a new one—we recommend paying close attention to the impact that changing locations might have on your family’s financial picture. Especially if you are changing locales in the United States, you’ll want to consider your new state’s taxes, forms of ownership, marital laws and any other potential quirks.
Clearly a new home state’s taxes can make a big difference. Some of our clients think of moving from a high- to a low-income tax state within the United States (New York to Florida, California to Texas). Others investigate the practicality of moving from the continental United States to Puerto Rico, a jurisdiction favored by both the federal government and the Commonwealth itself with low tax rates for qualifying U.S. citizens. Some people even entertain the idea of renouncing U.S. citizenship and immigrating to another country to escape U.S. taxes on most if not all of their future income and gains.2
It’s clear why a tax move is attractive: State income tax rates vary so widely among the 50 states.3 The high for California residents of 13.3% is challenged only by the top tax rate of 14.776% paid by New York City residents with more than $25 million of income (10.9% by the state and 3.876% by the city). Meanwhile, residents of nine states (including Florida, Tennessee and Texas) pay 0% in state income taxes.4
Increasingly, remote work is complicating many people’s calculations. There are unresolved questions about which state can (and how) levy income taxes on a person who is working remotely from one state for an employer based in another state.
Meanwhile, state transfer taxes are sometimes worth considering. At last count, 19 states have some form of estate and/or inheritance taxes. Connecticut is the only state with a gift tax.
Still, we find that most people do not in the end move for tax reasons alone—and we think that’s wise. As with investing, we always recommend clients consider tax implications but not base their decisions solely on taxes.
If, however, you do decide there are enough reasons for you to move, we recommend you take great care on the state tax front. Your old state may continue to consider you a resident unless you can prove, by “clear and convincing evidence,” that you have not only physically departed but also legally established a domicile in your new state.
Evidence that you have truly established residence in a new state includes proof of where you send your children to school, register your car and keep your pets. But that’s not all that’s required. So, if you’re going to move your home, do it right; ask your J.P. Morgan team for a Changing Domicile Checklist.
State laws differ in how they treat property ownership. Be careful: the specifics can have a significant impact on your finances.
Eleven of the 50 states, including California and Texas, are “community property” states. In the community states, no matter whose name is actually on an account or title, all property is generally considered owned by both spouses.5
So, pay attention if you’re married and moving from a separate property to a community property state or vice versa. At the least, your estate-planning documents will need to be updated. At the worst, a divorce or death may have new consequences.
Also, mover beware: Not every state recognizes every form of ownership. For instance, not all states recognize “tenancy by the entirety.” Nor do all states recognize what other states might refer to as “payable on death” or “transfer on death” accounts. Moreover, states vary to some extent on, as an example, at what age a minor has full rights over assets held in a UTMA account.
States also offer varying degrees of protection from creditors for a homeowner’s principal residence. Florida, for example, has a homestead exemption that provides significant protection to the homeowner. By contrast, neither New Jersey nor Pennsylvania has homestead exemption laws.
Take care that you do not inadvertently “get” married. If you move from one state to another, you might, in time, be considered married in the new state even if you never would have been considered married by your former state, never got a marriage license and never formally exchanged vows. While most states require a license for a marriage to be recognized, not all do; a handful still recognize so-called “common-law marriages,” that is to say: Live together long enough and that’s it, you’re married.6
Also, what you wind up with after a divorce or the death of a spouse can be vastly different depending on where you live or get divorced. Community property states will divide a married couple’s property equally, regardless of how long the marriage lasted—unless there is a valid pre-nuptial or other agreement in place.
In contrast, separate property states typically consider numerous factors when determining an equitable property division during a divorce. Transfer taxes also are different: If no provision has been made for a surviving spouse in a deceased spouse’s will, separate property states generally require that the surviving spouse receive only an “elective share” (usually less than half).
Clearly, before you move, you’ll want to consult your tax advisors, estate-planning lawyers and J.P. Morgan team about the potential financial impact of your new state—and what you might do to adjust your financial life accordingly.
And after you move, rest assured, at J.P. Morgan is ready, willing and more than able to serve you and your family, wherever your new home may be.
The common law marriage states include South Carolina, Utah, Texas (in some circumstances) and about five others.