It’s a common scenario: An elderly relative is no longer able to live alone, so family members sell the relative’s house and have the relative start living with them or in a nursing home or assisted living facility that’s closer to the family.
One thing you might not consider during this stressful process is that if the relative moves to a different state, you might have just changed the person’s state of residence for tax purposes. And that could have a significant effect on his or her estate plan.
For instance, if someone moves from a state with no state estate tax to a state with such a tax (such as Illinois, which imposes a tax on assets above $4,000,000 that pass to anyone other than your spouse), and he or she passes away, an estate tax might be owed on the value of the person’s assets (in addition to the costs to prepare an estate tax return) – even if he or she lived in the new state for only a short time. This is a significant danger because, while the federal estate tax generally doesn’t apply to estates unless they’re worth over $5.49 million (based on 2017 law), many state estate taxes start at a much lower figure.
Such an outcome could lead to friction between heirs. For instance, suppose the relative’s will or trust leaves one child certain specific assets and the other child “everything else.” The relative may have set things up so the children would receive more or less equal bequests. But under the law, if a state estate tax is suddenly due, all of it may come from the share of the child who gets “everything else.” This could upset a careful estate plan and create family disharmony.
If you’re thinking of moving an elderly relative to an out-of-state home or facility, it’s a good idea to speak with a local estate planning attorney about the proposed change. Of course, you might also discover that there are tax advantages to having the relative be treated as a resident of the new state, and you’ll want to plan for that as well.