Joan Rivers’ estate planning gambit: A New York state of residence

Joan Rivers’ will is generating plenty of chatter in the estate planning community, as the document suggests the comedienne reduced her estate tax burden by claiming residency in one state and being based elsewhere.
The late Ms. Rivers, who passed away in September at age 81, had a will on file at the Surrogate’s Court in New York, dated Nov. 16, 2011. A copy of that document, which hit the tabloids on Dec. 9, is available here, via The New York Post’s Page Six.
Most notably, the will states that Ms. Rivers is a resident of the Empire State, but also declares that her state of domicile — the location where she intends to “reside indefinitely on a permanent basis” — is California. A provision further in the document also declares that New York laws will apply to the validity, interpretation and administration of the will, but provided that Ms. Rivers is domiciled in California when she dies, then the laws of the Golden State will apply instead.
The attorney whose name is on the will, Ilene Turk, had no comment.
Estate planning attorneys noted that while it’s not unusual for celebrities to be bicoastal — and many high-net-worth clients have homes in multiple locations — the distinction between Ms. Rivers’ state of domicile and her state of residence may make a difference with respect to state estate taxes. It’s also a tactic that’s hardly ever seen among estate planning clients.
“New York and California have high income taxes, but New York still has a state estate tax of 16%,” said Bruce D. Steiner, a tax and estate planning attorney at Kleinberg Kaplan Wolff Cohen. “Lots of people have more than one home, and there’s an estate tax benefit to being in California.”

MORE MONEY, MORE PROBLEMS

Readers who’ve paid attention to the developments in New York know that the Empire State raised its estate tax exemption from $1 million to $2.062 million per person in April. It will rise in each year until Jan. 1, 2019, where it will reach parity with the inflation-adjusted federal estate tax exemption.
This is what makes New York estate taxes difficult. The exemption is phased out for those with a New York taxable estate whose value is 5% greater than the state estate tax exemption. If you die between April 1, 2014, and March 31, 2015, estate taxes are due on the entirety of your estate if it’s worth $2.165 million — 5% more than the exemption of $2.062 million.
In the Golden State, where Ms. Rivers is domiciled per the will, there is no estate tax and there hasn’t been since 2005.

NEW YORK STATE OF MIND

Generally, clients can be residents in many locations, but they can only be domiciled in one in the context of estate planning. “The domicile is where you always intended to return; it’s where you establish your primary contacts and your social clubs,” said Gideon Rothschild, partner at Moses & Singer. “It sticks with you even if you have multiple residences.”
But what are the benefits to considering residency in New York with respect to estate planning? One thing that might factor into that decision is the state’s probate process. “In New York, it’s quite simple: so long as nobody objects, the court doesn’t get involved in estate administration,” said Mr. Rothschild. “In California, it can be more complex and time-consuming, and can involve higher legal fees.”
Advisers run into the issue of selecting residency and domicile with many of their high-net-worth retirees: Clients in New York or New Jersey might own a second home in Florida, where they spend their winters — and where there are no estate and individual income taxes.
But in practice, clients hardly ever declare that they’re domiciled in one state and residents of another. Home is either New York or Florida. Never both.

WHERE WILL YOU LIVE — AND DIE?

Plenty of planning goes into determining where a retired client will call home in order to receive the appropriate tax benefit. Leaving one place for the other is not an easy decision, noted Charles Douglas, editor of the National Association of Estate Planners and Councils’ Journal of Estate and Tax Planning. “You look at the intent to abandon the old domicile and establish a new one,” he said.
State tax authorities will look at voter and vehicle registrations, as well as a client’s driver’s license, in order to determine where a client is based. “You have to be intentional about having one state be your place of domicile,” Mr. Douglas noted.
Nevertheless, when a client decides to switch domiciliary states, he or she is also claiming that jurisdiction for residence. Estate planning experts noted that a decision to have two different states for domicile and residency could call the attention of state tax departments.
“If you’re domiciled in California, but you say in your will that you’re a resident of New York, you’re waving a red flag to the state of New York’s taxing authorities,” noted Mr. Steiner.

Related Topics: Certified Public Accountants (CPAs)