Where your clients choose to make their home is important for the years they live there. But there are some other considerations that go beyond livability and good schools.
The state a client lives in can work for, or against, heirs when it comes to inheriting an estate. Your clients’ location of residence may also have a significant impact on their final years, from their health care decisions to end-of-life planning.
Advisors should ensure that clients understand the benefits they may reap by moving to another state, and also help them plan to preserve their right to change domiciles if they become incapacitated later on.
WHY IT MATTERS
How exactly can location of domicile affect your clients and their heirs? For one, if a client is living in a state with a state estate tax (such as New Jersey), moving to a state without this tax (such as Florida) could mean substantial savings for heirs.
The state in which a client lives can also influence how spousal right of election is calculated. This is the amount a surviving spouse is entitled to if the will provides for a lesser amount.
State of residency may also have an impact on medical and end-of-life decisions; state laws differ widely regarding the permissibility of medical marijuana, assisted suicide and so forth. For example, physician-assisted suicide is legal in Oregon, but not in California. Changing domicile may therefore be an important part of carrying out a client’s final wishes.
One person who took advantage of a move was Brittany Maynard, a 29-year-old woman suffering from incurable brain cancer. She changed her domicile to Oregon from California in 2014, because Oregon was one of only a few states where assisted suicide was authorized. She died in November of that year.
As their clients enter old age, advisors should counsel them regarding the possible cost savings and other advantages of relocating to another state.
But what happens when a client begins to become incapacitated and can no longer make these crucial decisions on his or her own? Statistics show that nearly half of people age 85 and over have some degree of cognitive impairment, according to the Alzheimer’s Association. Is it possible for an incapacitated client to go through the process of changing a domicile?
The answer is not always clear, and in many cases, it will be a definite no. However, there are steps that can be taken to preserve a client’s ability to gain the potential benefits of moving to a different state.
In legal terms, where one chooses to live is an example of intent. If a client is considered incompetent — for example, in a persistent vegetative state — he or she cannot legally change his or her intent. But can an agent, guardian or other person speak for the client to allow for a change of intent, thus permitting the client to make the big move to another state? Some courts have allowed a legal representative to change the domicile of a ward if the changes are clearly for the ward’s benefit.
For example, an Indiana court allowed a guardian to change the domicile of the ward she was responsible for, but only under court order, because the change would alter distribution of the ward’s estate.
However, even if such a process succeeds, it will require a public court proceeding and attendant costs, and it could take a heavy personal toll on the client and the client’s family.
ACTING ON A CLIENT’S BEHALF
What if a client signed a durable power of attorney authorizing an agent to act on his or her behalf if he or she becomes incapacitated? Can that agent act to change the client’s location of residence?
While a number of court cases have considered this possibility, some courts have reasoned that domicile is a matter of personal concern and has no bearing on the actions of a financial agent.
Therefore, the agent has no authority to speak for the client when it comes to making a move to a different state, even if it will be beneficial for the client.
What can be done to help clients retain their choice to change state of residence, even in the case of incapacitation? If there is merit to the argument some courts have made that changing domicile is a personal decision — not a financial or legal decision that can be delegated — a broader approach might be preferable.
An advisor can recommend that a client’s health care proxy include an express right for the agent to change domicile. The financial agent can then be given the power to take all legal and financial matters to support a move determined by the health care agent.
These moves might include selling a home in one state and purchasing a residence in another.
The addition of a few sentences in each document might suffice to preserve the right for a client to move to a more beneficial state for his or her situation, even if he or she becomes legally incapable of making such decisions at a future date.
Doing this could make a huge difference in the quality of a client’s final years and in his or her heirs’ financial stability.
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