Our government is based on federalism, which is why we have different laws in individual states as well as federal laws. This allows for legal “experimentation,” with representatives in each state free to make different rules in many areas, from taxation and healthcare to marriage and even crimes.
One complexity in living in such a system exists when laws conflict and individuals do not necessarily live in one state or another. Sometimes the conflict is easy to resolve. For example, if one state allows you to drive while talking on the phone and another does not, then citizens are forced to abide by the law of the state they are in at any given moment.
But sometimes it is not that easy. There is often much complexity when it comes to different estate planning and tax rules.
NY Income Taxes For “Snowbirds”
Late last month Forbes published an article that touched on one of those complexities, discussing how New York residents who winter in warmer states struggle with tax obligations. The story notes that it is often difficult for someone who splits time between two states to convince the higher tax state that their primary residence has changed, leading to no tax obligation.
A recent New York Division of Tax Appeals case illustrates the point. The couple at issue spends most of the year in a Queens home in the Malba neighborhood. In the mid-1990s the couple transferred the house to a QPRT. This refers to a “qualified personal residence trust” and usually used to transfer a home to others (in this case the couple’s children) with gift and estate tax savings. Even though the couple’s children technically own the home now, the seniors still live there most of the time and pay rent to the children. In addition, the seniors own a Florida home where they live in the winter.
The tax dispute in question was whether the couple owed New York income tax. They did not technically own a home in New York. In a somewhat complex ruling, the state of New York won, successfully arguing that the couple met both “domicile’ and “residence” requirements. There are detailed rules and requirements about how these two locations are decided as a legal matter.
While this case related specifically with income tax, similar disagreement may arise with inheritance and estate taxes, as seniors may split time between different locations. For help understanding how different state tax rules may apply to your family, be sure to get help from an estate planning lawyer.