As winter approaches, many clients migrate south to escape the cold. If you are meeting with a client before the client departs or after the client has arrived in the destination state, below are some important considerations for discussion.
Which state does the client consider home?
A client’s state of domicile impacts the client’s estate planning, family law matters, and taxes. Due to differences in state tests for determining residency, a person can be considered a resident of more than one state; however, a person can only be domiciled in one state. Although state laws differ as to determining domicile, the common elements are that a person’s domicile is where the person permanently lives and where the person intends to remain or return.
Because the client is spending time in two (or more) states, the client should meet with a tax advisor to confirm that the appropriate tax returns are filed and that there is a plan in place to address the potential differences in tax laws. For example, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have any personal income tax. The client may also need to meet with us to discuss the estate planning implications of owning properties in multiple states, especially if the client owns properties in both community and separate property states.
Has the client reviewed the client’s estate plan lately?
Before leaving, the client should locate and review the client’s estate planning documents. Life changes are common and sometimes occur without warning. Having an up-to-date estate plan helps to ensure that the client’s wishes are carried out during the client’s lifetime and at death. You can ask the following questions to determine if the client’s documents still meet the client’s needs.
- Does the client still want the named fiduciaries (i.e., the trustee, personal representative, guardian for a minor child, and agents under a financial power of attorney or medical power of attorney) to act on the client’s behalf, and are those fiduciaries still willing and able to do so?
- Are the client’s named beneficiaries still alive? Are there any additional individuals or charities the client would like to leave something to? Does the client want to make any adjustments to the amount of an inheritance or the manner in which the client leaves an inheritance to a beneficiary?
- Do the client’s beneficiary designations for retirement accounts and life insurance policies match the rest of the client’s estate plan?
- If the client has to move for health reasons but is unable to make that decision, does the client’s agent have the authority to relocate the client to another state?
Additionally, the client may require assistance with financial matters or transactions while away. For this reason, the client should review the existing financial power of attorney to determine if it is springing or immediate. A springing power of attorney allows an agent to act only when the client is no longer able to act on the client’s own behalf (as determined by a physician or, in some instances, a judge). By contrast, an immediate power of attorney allows the chosen agent to act on the client’s behalf right away, regardless of the client’s current ability to act.
While reviewing their existing estate plan, the client should evaluate whether it includes all of the necessary documents. If the client currently has a will-based estate plan, it may be time to add a revocable living trust to the client’s estate planning portfolio. This is especially important if the client now owns property in more than one state. Without a trust to consolidate ownership, the client’s loved ones may end up going through multiple probate administrations in different states. This can increase the time and cost of settling the client’s affairs and distributing the client’s property at the client’s death.
Are the client’s estate planning documents compliant in both states?
Estate planning laws are state specific, and for certain documents, such as a financial power of attorney and healthcare directive, each state may have its own statutory forms. While it is possible for one state to honor a document that was validly executed in another state, it will be faster for medical providers to honor the client’s wishes in an emergency if the instructions are in a familiar form. We advise that the client have an attorney licensed in the second state review the client’s estate planning documents for compliance, and if necessary, prepare a second financial power of attorney and healthcare directive.
What is in it for you?
Deciding to live part of the year in another location can be expensive. Whether the client is renting or owns additional property, the client will likely incur extra costs (e.g., for insurance, automobiles, travel and entertainment, property maintenance). As a trusted advisor, you can meet with the client periodically to evaluate where the client is financially and whether any changes should be made to maintain the client’s current lifestyle. You may also uncover additional assets the client can entrust to your management.
Having an additional residence may also necessitate that the client purchase more insurance products. To cover the client’s home or personal property, the client may need renter’s insurance or a homeowner’s insurance policy. Further, because an additional residence can be expensive, the client may need to purchase more life insurance. This money can provide the surviving spouse or other family members with the liquidity needed to maintain or continue the use of the property after the death of one or more of the original owners.
Lastly, because being able to spend the winter months in a warmer climate is often a lifelong goal for many clients, your guidance can help create a stronger bond between you and the client. You are no longer just an advisor but rather an integral player in maintaining the client’s dream.
We need to work together
A comprehensive estate, financial, and tax plan requires many team members. Let us collaborate to provide the best holistic service to our mutual clients. Please do not hesitate to call me at 708.448.5169 to discuss strategies for working with this unique group of clients. We are available to meet virtually or in person, whichever you prefer.
