Residency vs. Domicile – Can NJ and NY Both Tax Your Estate?

By: Fredrick P. Niemann, a NJ Estate Administration Attorney

An often overlooked issue in probate and estate administration is the determination of a decedent’s domicile.  Most times it is usually straightforward.  However sometimes, the decedent’s ties to a particular jurisdiction are unclear.

Domicile impacts several aspects of an estate plan, namely “rights concerning property, intestate distribution, and the validity of a will, the elective share or other rights of the surviving spouse and the rights of their heirs.

Determining domicile and residence also has important estate and income tax consequences.  In addition, the concept of domicile is pivotal to where a will should be probated and which law governs the disposition of the estate.

Domicile is generally defined as the place where one has his or her permanent home.  Domicile becomes particularly important for clients who are considering relocating because of retirement, job relocation or for tax considerations, especially residents of NY and NJ with an oppressive tax burden.  The reasons have become increasingly common.  In turn, the challenge of ascertaining domicile has become increasingly complex.

The requirements for a person’s domicile is sensitive and includes the physical presence at a dwelling place and the intention to make that place home.  The key facts in determining domicile may include:

• Where the decedent was living at the time of his death,
• Type of residence (ie., seasonal, permanent or temporary),
• Whether the dwelling was maintained while the decedent was physically out of the state,
• Where decedent was buried,
• Where decedent was last employed or actively engaged in business,
• When and where decedent last voted,
• Whether decedent used the state’s address for income tax, and
• Where decedent had a driver’s license.
• Where decedent had mail delivered.

The key dilemma is that, although each person may have only one domicile, more than one jurisdiction may claim domicile.  More than one state may claim domicile because neither the 14th Amendment nor the Full Faith and Credit Clause of the US Constitution requires uniformity in the decisions of different states as to domicile.

One of the most prominent, and infamous, decisions in the arena is In re Dorrance,  115  N.J. Eq. 268 (prerog. 1934), aff’d.,  116 N.J.L 362 ( E.&A. 1936), cert denied, 298 U.S. 678 (1936).  John T. Dorrance was a member of one of the wealthiest and well-known families in New Jersey.  He died in 1930.  The state tax commissioners assessed an inheritance tax of almost $17 million.  The executors of the estate alleged that the assessment was invalid because Mr. Dorrance had not been domicile in New Jersey at his death.

For several years before his death, Mr. Dorrance occupied two residences, one in New Jersey and one in Pennsylvania.  Indeed, the New Jersey Prerogative Court acknowledged that the Pennsylvania Courts had already upheld a $17 million tax assessment in favor of Pennsylvania.  The executors asserted that the ruling by the Pennsylvania courts- that Mr. Dorrance was domicile in Pennsylvania at his death-was binding on the New Jersey courts.

The New Jersey Court disagreed.  It reasoned that the courts of a sister state always have the power to inquire into the jurisdiction of the court which pronounced the judgment at issue.  In turn, the New Jersey Court held, if the sister court finds that the first court did not have jurisdiction; the judgment need not be accorded full faith and credit.

After a review of the facts bearing on domicile, the New Jersey court concluded that Mr. Dorrance had remained a domiciliary of New Jersey at his death, and that the Pennsylvania Courts had been incorrect in their contrary determination.  Consequently, the Pennsylvania holding was not binding on the New Jersey court.  Both states assessed taxes against the estate.  Such decisions now percolate regularly across the country.  People are now exposed to double taxation.  As society becomes more mobile, the issue will continue to arise more frequently.  In view of the importance of the determination of domicile, the issue must remain at the forefront of the handling of any estate.

If you would like to discuss a probate or estate administration matter, please call Fredrick P. Niemann, Esq. today.  He can be reached at (888) 800-7442 or by email at fniemann@hnlawfirm.com/.

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