Wednesday, July 28, 2021

Clients Moving Out of State Can Face Estate-Plan Snafus

Help them find a local attorney to ensure documents comply with state laws.

Deborah Danger
Deborah Danger

The upheaval of COVID-19, and the gradual return to “new normalcy” have brought many changes to my estate planning practice, including an uptick in out-of-state moves by my baby boomer and senior clients.

Several are now buying homes in or outside Massachusetts, where DangerLaw, LLC, is headquartered, because they want to be closer to family. They envision the benefits of children or siblings providing support, care and attention if there is another pandemic. Because of this, I am now frequently asked if clients should be updating their estate plans when they move.

My answer: Almost always yes. Let’s unpack the reasons why.

A Catalyst for Change

First, any move — even in-state — should be a catalyst for clients to review their wills, healthcare proxies and other related documents. If a plan is more than a few years old, it’s a good idea to ensure that it still represents clients’ wishes and preferences. For example, if their children were minors when the plan was initially prepared and are now adults, clients may wish to name one of them as their health care agent.

Moreover, if the documents don’t reflect recent tax code changes, and clients anticipate capital gains (because of the sale of their home or an inheritance), then establishing a relationship with an attorney in the new state and reviewing options beforehand is a good idea. Marriages, divorces and new grandchildren are also important triggers to review the plan.

“Any move — even in-state — should be a catalyst for clients to review their wills, healthcare proxies and other related documents.”

On the other hand, if clients’ estate planning documents were properly executed in their former state of residence, and no immediate changes are needed, they will most likely be honored after the move if something unexpected happens. This is because Article IV, Section 1 of the United States Constitution requires that each state give “Full Faith and Credit…to the public Acts, Records, and judicial Proceedings” of other states.

Unexpected Complexities

However, I recommend that clients not rely on this assumption and have their documents reviewed by a local attorney, even if they appear airtight.

Otherwise, they (or their heirs) may face frustrating delays carrying out last wishes should they experience a serious illness or accident.

For example, imagine that a client is moving from another part of the country to Asheville, North Carolina. Even with “Full Faith and Credit,” North Carolina requires that wills specify that signers are over 18 years of age, of sound mind and not unduly influenced by others. Wills lacking this language have been rejected by North Carolina court clerks, causing mayhem.

There are many other reasons a will may be in urgent need of revision after a client moves:

1) If the client is married and transitioning from a common law state to a community property state or vice versa, the rules regarding what and how much property each spouse owns may be different than those of their former state.

2) Some states restrict who can serve as the administrator/executor/personal representative of an estate. Florida, for example, requires that this individual either be related to the client by blood or marriage, or be a Florida resident.

3) Even if out-of-state executors are permitted by the new state of residence, they may be required to post a bond, or fulfill other time-consuming and expensive requirements.

If the client doesn’t have any in-state contacts and wants to expedite the work of administering their will, it is often a good idea to appoint a corporate or professional executor.

Beyond Wills

Here is information regarding other documents clients should think about.

The Trust. Revocable living trusts are not restricted by local laws the way that wills are, meaning they will likely work the same way wherever in the United States a client moves. Regardless, I recommend that they also be reviewed and that clients consider amendments to reflect their new residence. This review should include retitling new real estate and asset acquisitions in the name of the trustee to maximize tax and probate benefits.

Health Care Proxies, Advance Directives and Medical Durable Powers of Attorney.  These documents are typically governed at the state level and each state has its own forms, templates and requirements. As you may recall from a previous article, some states also acknowledge advance directives and others don’t. These forms are among the most important to address so that clients’ end-of-life decisions will be honored.

Durable Powers of Attorney. I recommend that power of attorney designations be updated after a move so they are consistent with the laws and execution requirements of the new state. Doing so will increase the chances that the client’s new financial institution will recognize the arrangements.

Beneficiary Designations. Payable-on-death accounts and beneficiaries named on life insurance policies, retirement accounts and annuities should be honored no matter where the client moves. The beneficiary designation serves as a contract between the client and the institution that holds the asset, and sometimes it is regulated by federal rather than state law. It’s good practice, though, to double check that the insurance company still has the client’s form on file (many get lost due to digitization) and that beneficiary information is accurate and complete (including phone numbers).

Finally, there is guardianship to consider. Some of my clients find themselves serving as a court-appointed guardian or conservator of someone they love, whether it be a spouse, friend or child. When clients move outside the jurisdiction of the court that appointed them, their appointment must terminate in the original jurisdiction and a petition for the same designation in the new jurisdiction must be filed.

Residency Requirement Reminders

A word of caution if a client’s plan is to relocate to a new state for part of the year and maintain and return to their former residence on a regular basis: Be aware that the IRS and each state may challenge his/her residency. This can impact income and estate taxes, and asset distribution, so it’s another reason to consult with an attorney. Being strategic about establishing and documenting residency in the client’s intended new domicile may have other benefits, as well, that a local attorney can explain.

In short, our clients are re-emerging into a new world, with a renewed sense of purpose. The values that are driving them to move should be reflected in their estate plans — helping to ensure that every aspect of their transition will be carried out according to their wishes.

Estate Planning and Probate Attorney Deborah Danger, Esq., LL.M. (taxation) is the Managing Member of DangerLaw, LLC, Newton, Mass. Contact her at deborah@dangerlaw.com.

Latest news

Advisors Warm Up To Annuities

A new survey suggests that a growing number of financial advisors will consider annuities that are low cost and less complex.

Private Foundations Increase Giving During Pandemic

A new report shows an uptick in grantmaking during a year marked by COVID-19 and racial justice issues.

Prepare Clients Who Fear Their Heirs are Spendthrifts

The SECURE Act and pending estate-tax changes make it imperative to rethink wills and trusts, says this CFP/CPA. (By Howard Hook)

RBC Wealth Management-U.S. Appoints Culture Executive

RBC has named Shareen Luze, a 15-year veteran of the firm, as Head of Culture and Field Experience.