I Am Moving to a New State: What Happens to My Estate Plan?

If you planned your estate, but are moving from one state to another, check for these major discrepancies in laws and procedures.

It used to be that after college, people found a position with a great company and spent much of their lives in loyal service to said employer. They’d put down roots and grow their network, becoming entrenched in the familiar people and surroundings of their city. Today, unless you run your own successful business, it is not uncommon that folks will change companies often in their careers and will need to move across town or even to another state.

If you do move, one of the first things you should do after getting settled is to check in with an estate planning attorney in your new state. Though many estate and trust laws can be alike in different states, here are some things you should keep in mind and follow up on with a new attorney:

Common Law vs. Community Property

Marital property in the United State is classified in two different ways: common law and community property. Most states are common law states. This means that property acquired by a married person during a marriage is the property of that person separately, unless the person agrees with his or her spouse to hold the property jointly. By contrast, 10 states are community property states – our state of Arizona, along with California, Idaho, New Mexico, Louisiana, Washington, Nevada, Texas, Wisconsin, and Alaska.

Therefore, property acquired by either spouse under the community property system while married becomes community property. Property acquired before marriage, as well as property inherited or received as a gift during a marriage, is generally considered the separate property of the recipient spouse.

Why is this important? Moving between states with two different property laws can confuse your estate plan by making it unclear who owns what property at death. There might also be significant tax consequences at death depending on whether property is classified as community property or common law.

Powers of Attorney & Wills

In general, many states will uphold estate planning documents executed in another state. However, they are NOT obligated to do so and if there is a challenge to any of your documents, your property’s fate rests in the hands of a judge who may be guessing as to your previous state’s laws of disbursement and your true wishes. This is especially true since Arizona is a community property state and in the minority. There is also your executor(s) to think of as well. Check to be sure there are no laws affecting out-of-state executors.

Inheritance, Estate, and Income Tax Implications

Several states, such as Washington state, impose no income tax, while others have high-income tax rates, like California at more than 13%. Arizona falls somewhere in the middle.

An inheritance tax is based on an individual gift of property. An estate tax is based on the overall value of an estate, all gifts made to all beneficiaries. Six states collect a state inheritance tax as of 2016, and two of them — Maryland and New Jersey — collect an estate tax as well. Arizona does not have either inheritance or estate tax since 2006. These two taxes may have lower exclusions than the federal estate tax exclusion of $5,490,000 in 2017. This is important because an old estate plan drafted with only the federal exclusion amount could be taxable in the new state of residence.

Moving is tough work, so make this part of it as easy as possible by having your documents reviewed after settling into your new home town.