More elderly people are looking for ways to maximize their retirement savings and to account for the fact that they may live longer than expected. Moving to lower tax climates is a popular strategy for addressing these issues. However, you need to be aware of some of the potential pitfalls and challenges of moving to a state with no or low income tax.
Research from the US Census Bureau shows that two states with no state income tax, Florida and Texas, saw the biggest population increases from 2020 to 2021. Many of those residents moved from higher-tax states like New York, California, and Illinois. When changing your domicile, remember that you may be affected by other things, such as inheritance and state taxes or even potential wealth taxes.
You also want to consider any of the state laws and rules that govern things such as the administration of trusts, selection of trustees, estate administration and asset protection. You may find that you are paying the state in other ways like property taxes, higher inheritance taxes or fuel taxes, even if you’re saving on state income taxes. If you do choose to move, it is equally important to follow through by showing that the move is real. To get registering to vote or obtaining a driver’s license in the new state is not enough.
State revenue agencies may audit taxpayers who claim that they’ve re-domiciled but have not followed through on showing their true residence of the new location. Working with your estate planning lawyer and financial advisor can help you to ensure you’ve considered all aspects in moving to a new location.
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