New State, New Estate Plan? Why a Review After Moving is a Good Idea
We are a mobile society. More than 7 million Americans relocate to a new state each year. With an interstate move comes big changes — a new job (or retirement), new neighbors, a new drivers license.
What about a new estate plan?
One of the most common questions I hear — both from past clients moving out of Illinois and from potential new clients moving to Illinois — is whether their existing estate plan is still valid and good. And admittedly, my answer is a typical lawyer answer: yes and no.
Yes, the legal documents are still valid, so don’t run them through the shredder before your move. In fact, the first thing to do is to make sure you can locate all of your original documents and be sure that they survive the move along with you.
But while documents executed properly in one state are generally valid in any other, there are some considerations and issues that do vary by state. As a result, an interstate move is an excellent time to make contact with an estate planning attorney in your new state for a review, and for an update as needed.
With that said, here are several things to keep in mind:
1. Wills and Trusts. Again, wills and trusts validly executed in one state will remain valid in another. But the interpretation of the language used can vary. Estate and trust law is a creature of state statute. Various states use different terminology and different presumptions which may implicate how the documents are ultimately interpreted and administered. Also, from a planning standpoint, decisions are sometimes made based partly on geography. For example, the local executor, trustee or guardian that you designated when you lived in California might not remain ideal when you move to Illinois.
2. Powers of Attorney and Advance Directives. As with wills and trust, powers of attorney and health care directives should remain valid in any state. That said, the usual forms for these documents are typically statutory and state-specific. An Illinois bank or hospital is likely to be familiar with Illinois powers of attorney, but may balk at honoring out-of-state powers. By their nature, you want powers of attorney to be easily recognizable and accepted when needed in a pinch. Therefore, I always recommend that new powers of attorney be executed in the new state of residence.
3. Asset Titling and Beneficiary Designations. Proper asset titling and beneficiary designations should be maintained and reviewed regularly. If you purchase a new home, ensuring proper ownership titling is critical. New accounts should also be titled appropriately. Often with a move comes a new job. With that, be sure your new 401(k) or IRA account properly designates your beneficiaries and is coordinated with your overall plan.
4. State Estate and Inheritance Tax. When applicable, estate and inheritance tax applies at the state level in the state where the decedent last resided and/or owned real estate. Illinois, with a $4 million exemption, is among 19 states that still have a separate estate or inheritance tax. As you change states, it is wise to review how new residency and real estate ownership might affect state estate taxation. Depending on the situation, a change in trust formulas and overall planning technique may be in order.
5. Community Property vs. Separate Property. Marital property ownership laws vary by state. Nine states — Idaho, New Mexico, Texas, California, Arizona, Wisconsin, Nevada, Louisiana, and Washington — apply “community property” rules to spousal asset ownership. Moving from or to a community property state can affect estate planning and asset ownership, so special attention is warranted. Additionally, state laws vary on the application of elective shares and spousal awards, which may affect how your estate plan is constructed.
Estate planning is not a “one and done” proposition. Periodic reviews and updates are critical. A change in state residency is one of the most important triggers for a comprehensive estate plan review.