Residency vs Domicile: What You Don’t Know Could Cost You

Written by  Joseph M. Donohue, Trust & Estate Attorney at Donohue, O’Connell & Riley PLLC: For more information about his law firm and areas of practice, visit https://www.dn-legal.com/ or contact their offices at 1-833-NH-TRUST.

For those who consider two or more states to be “home”, it is important to understand the legal distinctions between residency and domicile, and the opportunity for tax savings based on where you spend your time.

Residency controls for Income Tax Purposes:  Most states allow you to choose your state of residency, as long as you do not spend 183 days a year in one state.  In other words, its where you aren’t, not where you are, that controls residency.  This is strategic since residency controls for income tax purposes.

Domicile controls for Estate Tax Purposes:  Domicile is more important for estate tax planning, and it is a vital factor in order to preserve as much of your wealth as possible.  Where you spend your last days can have a drastic effect on your family’s inheritance since domicile controls for state estate tax purposes.

EXAMPLES:

• Mr. and Mrs. Smith are snowbirds, spending 8 months in New York and 4 winter months in Florida.  New York is both their residence and domicile.
• Mr. and Mrs. Jones are also snowbirds.  They live 5.5 months in New York, 4 months in Florida, and they travel visiting children for 2.5 months.  They can elect for either New York or Florida residency; however, their domicile is determined by where they consider their permanent home.

How a Beloved Dog Earned His Bone

In February 2017, the CEO of Match.com argued in the State of New York tax court that we was a resident of Texas after having moved there, and therefore a non-resident of New York.  New York claimed that he still owed state taxes.  The CEO claimed that he did not.

While the CEO had factors showing that he had ties to both states, the deciding factor came down to his most beloved possession – his dog – having moved to Texas.  Based on this, the court found that he (and his dog) were Texas residents, and therefore was not responsible for New York state taxes (In re Gregory Blatt 2017)

Donohue, O’Connell and Riley PLLC are a boutique income and estate tax planning firm with six offices in three states.  Their practice focuses on reducing taxes through the strategic and cost-effective use of onshore trusts domiciled in favorable jurisdictions.  They have been serving clients in New York and New Jersey for over 40 years.

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