What is Domicile and How Does it Affect Estate Planning?

Moving from one state to another is a significant life event.  It should include careful planning and attention to tax details.  Louisiana does not have a state inheritance or estate tax.  This differs from many other states that do impose a state level estate tax, which in many instances is in addition to the federal estate tax.  If you have moved to Louisiana from another state, you may be able to eliminate the state death or estate tax from your prior state.  To do so, you must establish Louisiana as your domicile.  Choosing to change one’s domicile is a major estate planning consideration.

How is Domicile Determined?

Residency describes where a person ordinarily lives.  A domicile is where a person has their permanent home and intent to remain.  Since residency and domicile are not the same, it is possible to be a resident of one location and domiciled in another.  Once a domicile is established, it remains until another domicile is established.

La. Civ. Code art. 38 defines the domicile of an individual as “the place of his habitual residence.”   Louisiana requires residency for at least six out of every twelve months, plus evidence of intent to remain permanently.  Domicile is determined from a totality of a person’s actions, and individuals can do a number of things to support their change of domicile:

• Changing their voter registration;
• Filing taxes in Louisiana, including filing a Louisiana state return and filing their Federal return from their Louisiana address;
• Applying for a homestead exemption in Louisiana;
• Obtaining a Louisiana driver’s license;
• Changing vehicle registration(s) to Louisiana;
• Updating the address on their passport;
• Updating or opening accounts and other records, such as bank accounts, brokerage accounts, insurance policies, credit cards, Social Security Administration, etc.;
• If any businesses are owned, changing the principal place of business and/or centering the administration and financial aspects of the business in Louisiana;
• If any memberships in out-of-state clubs are maintained, update the status to non-resident;
• Making future charitable donations to Louisiana branches, if applicable;
• Updating their will and or trusts to recite that they are a resident of Louisiana.

Other Considerations:

State Taxes:

When moving from one state to another, there are other considerations beyond just the estate tax when deciding whether to change one’s domicile.  If the prior state did not have a state income tax, it may be beneficial to retain a home there and maintain domicile there.  Comparing the property tax, sales tax, and gift tax rates between your prior state and Louisiana should also be considerations.

Community Property:

Louisiana is a community property state.  Community property laws can have a significant impact upon an individual or couple’s right to dispose of marital property.  When considering a change of domicile, the possible impact of community property laws should not be ignored.

Out-of-State Property:

It should also be noted that many states tax non-resident decedents on real property or tangible personal property that the decedent owns in their state.  Accordingly, if you are a Louisiana domiciliary and own real estate or tangible personal property in another state, it may be beneficial for you to restructure the ownership of your out-of-state property to avoid potential state level estate taxes on that property.  This can be done with an LLC.

Severing the Prior Domicile:

Federal courts have allowed states to determine domicile independently.  Thus, if you choose to change your domicile, it is equally important to take steps in your prior state to make sure you sever your domicile there.  Otherwise, you may still be liable for estate and other taxes there.

Louisiana Domicile Planning Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our experienced domicile planning lawyers can advise you whether a change of your domicile would benefit your estate plan and how it may impact your eventual succession.  We take pride in offering a personal and trusted experience.  Call us today for a free consultation and find out why so many of our clients come back to us.