Do you live in two different states? Are you a "snowbird" who heads south to warmer climates in the winter? Do you own a vacation home in another state? Living in two different states raises numerous complex financial issues that should be addressed by careful planning.

One of the first and most fundamental issues to address is permanent residency, or domicile. This may seem simple in your mind. You know which state you consider "home," and which one you visit. But the two states may view it differently. And their decisions could prove costly.

Here's a typical situation. Say you live in the state of Washington, but you vacation during the winter at your home in California. First, the fact that you own property in more than one state may subject your estate to probate in both states. Furthermore, California has a higher cost of probating an estate than Washington, and it has a high income tax, while Washington has no state income tax. How do you deal with these issues?

First, be clear about establishing or maintaining your residency. The common test for residency in states is 183 days-spend that or more in a state and that state is more likely to be viewed as your permanent residence.

This is not always as simple as it may sound. Appearances count for a lot. A Certified Financial Planner professional who works with Washington residents who winter in California recommends that they don't establish interest-bearing accounts or brokerage accounts with California banks or brokerages. Keep those in Washington. They also avoid having their paychecks forwarded to California, and he advises that they not earn any money in California. That helps avoid California income tax issues.

You can further establish domicile by registering to vote, maintaining a driver's license and automobile registration in your state, and establishing relationships with financial institutions and financial professionals in the state. Also maintain good financial records documenting your residency. Keep receipts of everything that shows where you were living on any given day-a trip to the grocery store, doctor's of fice or gas station. This may seem trivial and a nuisance, but ask homemaker queen Martha Stewart about the need.

New York state auditors claimed she was a resident of New York in the early 1990s because of her home in East Hampton, and that she consequently owed New York income taxes, which are among the highest in the land. Stewart and her accountants fought the case in court, producing hundreds of receipts, diaries, phone records and other documents to show that she was instead a resident of Westport, Connecticut. New York is a tough state to fight residency. Even partial days spent in New York or a trip to the airport have counted toward residency. Stewart lost her case.

To minimize probate issues, many Certified Financial Planner professionals recommend putting any property you own in a nonresident state, such as a vacation home, into a revocable, or living, trust. The property will then pass to the trust beneficiaries free of probate.

The domicile issue may crop up in other ways you've never thought of. Say you have a child at a state college and you move to another state, but keep your old residence? Will the child lose residency status?

Beyond income and estate taxes and probate issues, review your health insurance. Health care plans often limit coverage to a specific geographic area. You may need to own two policies, with one perhaps a short-term health policy to cover major emergencies. Or you may need to change policies, say from an HMO (health maintenance
organization) which typically won't cover costs if you go outside its network, to a PPO (preferred provider organization) which would cover a portion of the out-of-network expense.

Also review your property insurance. A homeowner's policy coverage can change if the home is left unoccupied for an extended period of time. If you're renting in your nonresident state, have you remembered to carry renter's insurance to protect your personal property in the event of loss?


August -30-2000