As part of their retirement and estate planning, many homeowners choose to split their time between homes in different states and claim the state with the lowest taxes as their principal place of residency. Retirees from northern states such as Illinois often spend much of the year in warmer climates as part-time residents, commonly called snowbirds, so they can enjoy recreational activities and hobbies year-round. Often the decision to split their time is driven by the need to reduce expenses, in particular state taxes. High tax states such as New York, California and Illinois use a residency audit to determine if a recent move out of state and change of residency was a true relocation, or was a tactic to avoid paying taxes.
Many people mistakenly believe they need only spend 183 days of each year outside their former state to win a residency audit, says MarketWatch. According to Accounting Today, there are four red flags that can trigger a residency audit:
1. Moving to low- or no-income tax states
2. Purchasing and traveling between multiple permanent abodes
3. Moving shortly before selling a business
4. Moving shortly before selling a large amount of stock or other asset that results in a capital gain
Financial experts recommend that extensive documentation, kept indefinitely, is your best protection in case your tax records are selected for a residency audit. It’s important to consult an estate planning attorney about your wills and trusts, in Illinois the definition of residency can include “certain estates or trusts whose decedents were domiciled in Illinois, as well as irrevocable trusts with grantors who were domiciled in Illinois at the time the trust became irrevocable.”
• Update estate planning documents with your lawyer to comply with your new state’s laws
• Maintain good records
• Register to vote and get a driver’s license
• Move your bank and financial records to your new address
Estate planning is preparing for the future. To make sure your assets are protected and your will and trusts are compliant with state laws contact Estate & Probate Legal Group in Lombard Illinois today at 630-800-0112.