December 16, 2019
By Joseph Price Jr.
On October 31, we learned that President Trump had filed an affidavit of domicile with Palm Beach County, Florida to change his State of Residency from New York to Florida. This gives us an opening to answer three of the most popular questions about changing state residency or domicile: why would you want to change your state of residency?; how do you change your state of residency?; and finally does the State that you are exiting ever challenge your attempt to change residency?
Why Would You Want to Change Your State of Residency?
The two most popular reasons are (1) to reduce your state income tax and (2) to obtain better asset protection from creditors. States with zero income tax include Florida, South Dakota, Texas and Washington. We will have an entire future issue devoted to the question “Which state’s asset protection laws are most beneficial for you?” The answer will depend on the type of asset you wish to protect.
How Do You Change Your State of Residency?
The short answer is that you behave like you live in the new state full time. The longer answer is that you proactively behave like you live in the new state full time, you gather evidence to prove your new state’s residency and you understand that there will be some motivated people in the old state trying to prove that your behavior is not sufficient to show that you ever left the old state. As a result, you may be required to pay income tax to the old state even though you thought you were no longer a resident.
What actions should you take to strengthen the case that you are a resident of the new state? For starters, in the new state, you should obtain a driver’s license, register your autos, register to vote, establish a bank account, acquire property, move your family and pets and spend more than 183 days there during the calendar year. No one action seals the deal but failing to take any of the above-mentioned actions may be evidence that you never really left the old state.
Does the Old State Ever Challenge Your Attempt to Change Residency?
If there is much deviation from your moving everything you own, including your personal and business affairs out of the old state to the new state all at once (Clean Break), then you may receive an inquiry from the old state’s Department of Revenue. Furthermore, if your continued residency in the old state would produce substantial taxable income under the old state’s laws, that state would be a lot more motivated to investigate the circumstances of your change of residency than if the taxable income was small.
The fact that the old state decides to investigate your exit from the state and that you didn’t move everything to the new state all at once, including your family, doesn’t mean that you wouldn’t prevail in a final determination by the state or in court. You would have to explain the deviations from the Clean Break scenario, and you would need to be able to prove that you were in the new state more than 183 days during the year in order to have success.