A Move Can Save Mil­lions

For ul­tra­wealthy clients, it may mat­ter a lot where their boat is docked.

Financial Planning - - CONTENT - By Tobias Salinger

For ul­tra­wealthy clients, it may mat­ter a lot in which state their boat is docked.

HIGH-NET-WORTH CLIENTS CAN SAVE MIL­LIONS OF dol­lars by chang­ing their domi­ciles, but they can’t com­plete the shift suc­cess­fully with­out care­ful plan­ning, ac­cord­ing to one ex­pert.

Ad­vi­sors help­ing their clients to move to states with no state in­come tax or es­tate taxes should rec­om­mend they keep metic­u­lous records at all times, Bachir Karam, a spe­cial coun­sel in Sul­li­van & Cromwell’s Es­tates and Per­sonal Group, said at the Source­me­dia Dis­rupt|ad­vice con­fer­ence in New York in Septem­ber.

The size of clients’ new homes; the lo­ca­tion of their boat, art and heir­looms; and the pre­cise break­down of how many days they spend in their new and for­mer states may all fig­ure in lit­i­ga­tion around domi­ciles, Karam notes. Ad­vi­sors should even dis­cuss what flights clients take in and out of the old state, he says.

The ab­sence of es­tate and in­come taxes in Florida, Ne­vada, South Dakota, Texas and Alaska is a key mo­ti­va­tion for peo­ple mov­ing to those states, and such moves are made eas­ier be­cause of tech­nolo­gies that en­able vir­tual meet­ings and tele­work, Karam says.

Mean­while, the high state rates in New York, Cal­i­for­nia and Con­necti­cut are driv­ing res­i­dents away, he says. “Each year, it feels like they’re up another per­cent­age point or a frac­tion of a per­cent­age point,” Karam says. “And ev­ery point is cost­ing our clients — in some cases, mil­lions of dol­lars.”

“And so when we re­mind them that, if they were a res­i­dent of a dif­fer­ent state through cer­tain care­ful plan­ning steps, they could save that amount,” Karam says, “it’s re­ally start­ing to push the en­ve­lope to get them to think about do­ing this plan­ning.”


New Jersey’s move to end its es­tate tax on Jan. 1 will make it some­what more at­trac­tive to HNW clients. But both New York and New Jersey of­ten lose res­i­dents to Florida or New Hamp­shire, he says.

Clients’ suc­cess in switch­ing their res­i­dency comes down to whether they spent more or less than 183 days in a state and to other as­pects of their domi­cile — that is, their per­ma­nent fixed home for le­gal pur­poses. Days spent and the lo­ca­tion of prized pos­ses­sions, known as “per­sonal items which en­hance the qual­ity of life,” loom large, Karam says.

In one case he cites, a client beat a New York tax au­dit with a boat as a key de­ter­min­ing fac­tor. The client moved the boat from a lake in New York to a dock off Florida, out­fit­ting the ves­sel for deep-sea salt­wa­ter fish­ing.

Clients es­tab­lish­ing a new domi­cile should also re­lo­cate works of art and get new driver’s li­censes and voter reg­is­tra­tions, he says.

Another client over­came an au­dit be­cause he sold his New York home, pur­chased one three times as large in Florida and rented a small New York City apart­ment to visit chil­dren, ac­cord­ing to Karam. A client who wasn’t as lucky had kept her New York home and out­fit­ted her home in Florida ex­actly the same.

Clients should con­sider doc­u­ment­ing their lo­ca­tion through en­crypted GPS records us­ing an app called Mon­aeo, Karam says.

When vis­it­ing their for­mer state, he says, they should book flights that ar­rive in the morn­ing and

de­part at night, in or­der to avoid spend­ing an ex­tra day on an early-morn­ing flight.

Re­gard­less of the steps that are taken, clients could face an­nual le­gal fights with their for­mer states, Karam says. The pro­ceed­ings could in­clude au­dits that take months or even years to re­solve. Two states may even claim a client as a res­i­dent at once, he adds.

“You can only have one domi­cile, but when you have clients spend­ing six months in one place and six months in another, it’s starts to be a very murky anal­y­sis,” Karam says. “And you can bet that the for­mer state will do its best to try to claw back the rev­enue.”

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