A forum for Hawaii's
business community to discuss
current events and issues
DAVID SWANN / DSWANN@STARBULLETIN.COM
Should you reside
where you live?
We have all thought about faraway lands and the path not taken. As we grow older, many of us are fortunate enough to have a second home where we spend much of our time. Perhaps it is a place near children or grandchildren. Perhaps you spend part of the year in Hawaii and part of the year on the mainland.
When you split your time between two or more states, of which state are you a resident? States look to many different factors. How much time do you spend in each state? Where are your business and family ties? Where is your larger and more expensive home? What state's driver license or ID card do you carry? In which state are you registered to vote?
Why does it make a difference in which state you are a resident?
Your state of residence is important for taxation and benefits. Some states, including Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax. On the other hand, Hawaii, California, Iowa, Maine, Montana, New Mexico, North Carolina, Oregon, Vermont and the District of Columbia each have marginal income tax rates exceeding 8 percent. This can make a huge difference for someone with a high income.
In addition to income tax, your state of residence determines which state levies estate tax on you at your death. There is a federal estate tax and about one-half the states have a state estate tax that simply is equal to the credit the federal tax allows for state estate taxes. Thus, the combined estate tax is no different than if there were no state estate tax at all. However, due to reductions in the federal credit and an increase in state budget deficits, a growing number of states are decoupling from the federal system and levying their own independent taxes.
Thus, you could pay substantially more in estate taxes if at your death you are a resident of a state like Ohio or New York rather than Florida, Nevada, or California.
Here in Hawaii, the estate tax exemption is going to be more limited than the federal estate tax exemption.
In addition to the tax implications, some states are more lenient in allowing their residents to qualify for Medicaid. For example, states disqualify you for Medicaid for a certain period when you make gifts. Some states will look back farther to see if you have made gifts. And the period of disqualification differs from state to state.
Depending upon your circumstances, it may be possible to structure your affairs to bolster your position as a resident of the preferred state. A qualified estate planning attorney can help you compare the benefits and burdens of possible states of residence.
Attorneys Judith Sterling and Michelle Tucker are partners in the Honolulu law firm of Sterling & Tucker. Reach them through www.sterlingandtucker.com or www.hawaiielderlaw.com, or by calling 531-5391.
To participate in the Think Inc. discussion, e-mail your comments to business@starbulletin.com; fax them to 529-4750; or mail them to Think Inc., Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, Hawaii 96813. Anonymous submissions will be discarded.
