November 22, 2019










Estate Planning with an Out-of-State Vacation Home

It is not uncommon to find a client that has property in multiple states. Usually, it involves an individual or couple that has their primary home here in New York but a vacation home elsewhere else in the country.

Whether you have a vacation home in Florida for the warm summers or a snow-ready cottage in the mountains of Utah, it is essential that you do not forget about it when you make your estate plan.

Also, you must realize that the laws for your out-of-state vacation home might differ from where your primary residence is located. Therefore, it is important you speak with an attorney to ensure that you have both jurisdictions covered and your estate plan does not violate any laws.

Your Plainview, NY, Domicile in Estate Planning

In estate planning, you hear various terms. And one that you will hear often is your domicile. The law allows for you to have one main place of residence, the domicile, which is where you return when you leave.

A person could technically spend three-quarters of the year out-of-state and still have a domicile in another. In most cases, identifying the domicile is easy. But other times, it might become complicated when you split your times equally between two residences.

You might ask why it matters where your domicile is, and what the difference is between a vacation home and main residence. The main issue you are addressing by labeling your domicile is the state estate tax or income taxes that must be paid upon death. Also, your domicile location determines which probate court has jurisdiction over your estate and your beneficiaries inheritance.

Where you are domiciled has a significant impact on your estate, especially for taxes. Even if your estate is exempt from the federal tax, some states impose estate tax at a lower threshold than the federal level. When you do not specify clearly in your estate plan, two states may claim that you have domiciles in their territory and both apply a tax.

Declaring a Domicile Might Help

You can declare your domicile within your estate documents. Doing so is helpful for determining which state can impose taxes and which probate court has jurisdiction.

Simply stating your domicile state is not enough. Instead, you must use evidence to support your declaration to avoid the state contesting your domicile designation. One way to prove which residence is your domicile is by providing:

  • Physician information – People see physicians in their home state. Therefore, your primary physician should be located in the state where you declare your domicile – and you would have insurance billings and records to prove it.
  • Employment – Your employer is typically located in your domicile state. Therefore, employer information helps support your declaration.
  • Voter registration – You are not required to register as a voter, but doing so helps establish your domicile state.
  • Bank accounts – Showing where your bank accounts were opened and managed help prove your domicile, too – especially if you use a financial institution that is not located in the state of your vacation home.

Ancillary Probate and Your Vacation Home

You want to avoid probate. But if you did not plan properly, your real estate in another state could be subject to that state’s probate. Known as ancillary probate, your beneficiaries may have to deal with the hassles and costs of waiting for probate to complete.

Avoiding ancillary probate is easy if you use the tools similar to those available for your home state – such as transferring the deed of your second home into a trust or creating a limited liability company to hold the property.

Selling or Gifting Your Vacation Home

Now that you have declared your domicile, you need to help loved ones avoid taxes on your secondary real estate. Property is often the highest value asset in an estate, and there are tax implications – especially for out-of-state properties.

An attorney can help you avoid being subject to estate or income tax where the vacation property is located. One of the better ways to avoid taxes is to transfer or sell the property to a family member through a trust. This keeps the real estate in the family.

One issue with doing so is your long-term care planning. When you do not transfer ownership correctly, that vacation home could be seen as a personal asset, which may disqualify you for Medicare or Medicaid benefits.

Questions to Ask before You Plan for Your Vacation Home

Before going through the hassles of selling, transferring, or planning for your vacation home, address the following questions:

  1. Does anyone in the family want the home? You may have sentimental ties to your family vacation home, and you might want to leave it to a child. But before doing so, ask if they want it. For some heirs, inheriting a vacation home is more of a hassle than benefit. Some may prefer to receive the liquid assets rather than the home itself.
  2. Who will pay to upkeep the vacation home? Vacation homes are expensive and still require maintenance even if they sit empty for weeks or months at a time. Some heirs may not be willing to cover the upkeep of that home. If you truly want the home to be a benefit, you may want to set up a trust that includes secondary funds for maintaining the vacation property.

Own a Vacation Home or Secondary Real Estate? Hire an Attorney First

Planning for a secondary home or vacation property can be complicated, especially when you are dealing with two different states. If you have a vacation property and you want to explore your options, schedule a consultation with an estate planning attorney.

The Law Offices of Andrew M. Lamkin, P.C., can help go over your options, discuss the pros and cons for both, and find a solution that works long-term for you and your beneficiaries.

Schedule your free consultation today at 516-605-0625 or contact us online to get started.