PORTFOLIO

The Mobile Client: Tax, Community Property, and Other Considerations (Portfolio 803)

Tax Management Portfolio, The Mobile Client: Tax, Community Property, and Other Considerations, No. 803-3rd, addresses various aspects of general and tax law that impact a client who changes domicile and discusses documents such a mobile client should execute to implement his or her estate plan.

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DESCRIPTION

Tax Management Portfolio, The Mobile Client: Tax, Community Property, and Other Considerations, No. 803-3rd, addresses various aspects of general and tax law that impact a client who changes domicile and discusses documents such a mobile client should execute to implement his or her estate plan. Particular attention is paid to issues that arise when the domicile change involves a move from a common law to a community property jurisdiction, and vice versa. The portfolio discusses the ramifications, as well as the mechanics, of a domicile change, co-ownership forms (including community property), spousal property agreements, and the estate and gift tax implications of the ownership choices.
Because community property laws vary considerably among the community property jurisdictions, the advisor should always consult an attorney admitted to practice in the prospective domicile and advise all clients that, if they contemplate a change of domicile at any future date, all instruments of the clients' existing estate plans should be reviewed by a lawyer admitted to practice in the jurisdiction to which the clients plan to move. Finally, a client executing a premarital agreement should be warned that, if either the client or future spouse ever moves to a community property jurisdiction, not all of the provisions in the agreement (particularly those affecting property rights) may be valid.
The citations to case law and statutes are meant to be illustrative of the issues that must be considered when advising the mobile client but are not meant to be definitive statements about the current status of the law. The advisor should review the relevant case and statutory law of the state or states where the client currently lives and plans to move when giving advice or drafting documents.
Except for the community survivorship agreements, the jointly funded revocable trust, and several model clauses, the sample forms in the Worksheets do not necessarily reflect potential community property problems. Therefore, when a client is domiciled in or planning to move to a community property jurisdiction, the advice of a lawyer in that jurisdiction should be sought as to whether the form adequately deals with the client's problems.
This portfolio may be cited as Mezzullo, 803-3rd T.M., The Mobile Client: Tax, Community Property, and Other Considerations.


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AUTHORS

LOUIS A. MEZZULLO, ESQ.
Louis A. Mezzullo, University of Maryland (B.A. 1967, M.A. 1976), University of Richmond (J.D. 1976); member, Luce, Forward, Hamilton & Scripps LLP (2006 to present); member, McGuireWoods LLP (2004 to 2006); member, Mezzullo & Guare, PLC, Richmond, Virginia (2000 to 2003); founding member, Mezzullo & McCandlish, Richmond, Virginia (1982 to 2000); former Adjunct Professor, University of Richmond Law School; author, 809 T.M. Estate Planning for Owners of Closely Held Business Interests, 812 T.M., Family Limited Partnerships and Limited Liability Companies, 814 T.M., Estate and Gift Tax Issues for Employee Benefit Plans, 831 T.M., Valuation of Corporate Stock, 835 T.M., Transfers of Interests in Family Entities Under Chapter 14: Sections 2701, 2703 and 2704, An Estate Planner's Guide to Buy-Sell Agreements (ABA), An Estate Planner's Guide to Life Insurance (ABA), An Estate Planner's Guide to Qualified Retirement Plan Benefits (ABA), An Estate Planner's Guide to Family Business Entities (ABA), Valuation Rules Under Chapter 14 (ABA); editor and co-author, Limited Liability Companies in Virginia (Virginia Law Foundation); co-author, Advising the Elderly Client (Clark, Boardman, Callaghan); Fellow and former Chair, American College of Tax Counsel; Treasurer and Regent, American College of Trust and Estate Counsel; Charter Fellow, American College of Employee Benefits Counsel; Chair, ABA Section of Real Property, Probate and Trust Law (2000 to 2001); Vice Chair of Publications and Chair of the Business Planning Subcommittee of the Estate and Gift Taxes Committee of the ABA Section of Taxation; Academician and Vice President, International Academy of Trust and Estate Law; and member, Advisory Council of the Heckerling Estate Planning Institute.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

Introductory Material

A. In General

B. The Need for a Will

C. Property Co-Ownership

D. Family Protection Statutes

E. Other General Considerations

II. Conflicts of Law

III. Domicile Issues for the Migrant Client

A. Introduction

B. The Concept of Domicile

C. Factors Indicating Domicile

D. Documents Required to Effectuate a Domicile Change

E. Domicile and Wills

1. References to Domicile

2. Domiciliary Probate

3. Situs or Ancillary Probate

F. Multiple Domicile

1. In Re Dorrance's Estate

2. Constitutional Issues

3. State Legislation

a. Death Taxes

b. Gift Taxes

4. Limiting Multiple Domicile Problems

IV. Multistate Issues of Testate and Intestate Succession

Introductory Material

A. Statutes of Intestate Descent and Distribution

1. Common Law Property Jurisdictions

2. Community Property Jurisdictions

B. Requirements for Disposition by Will

C. Rights of the Surviving Spouse

1. Elective Share

2. Statutory Dower

3. Quasi-Community Property

4. Planning

5. Charitable Remainder Trusts

D. Family Protection Statutes

E. Tax Apportionment

F. Income Taxation of Estate and Beneficiaries or Heirs

G. Fiduciaries

1. Selecting Fiduciaries

2. Bonding and Fiduciary Powers

H. Class Gifts

1. Adopted Children

2. Per Stirpal Distributions

I. Lapse of Bequests and Devises

J. Close Order of Death

1. Uniform Simultaneous Death Act

2. Uniform Probate Code

K. Rule Against Perpetuities

L. Charitable Dispositions and Mortmain Statutes

V. Probate Process

Introductory Material

A. General Probate Issues

B. Ancillary Administration

1. Real Property

2. Personal Property

3. Avoiding Ancillary Administration

C. Will Contests

VI. Co-Ownership of Property

Introductory Material

A. Five Forms of Co-Ownership

B. Tenancy in Common

C. Joint Tenancy with Right of Survivorship

1. Background

2. Abolition of Common Law Joint Tenancy with Right of Survivorship

3. Advantages of Joint Tenancy with Right of Survivorship

4. State Law Issues Affecting Joint Tenancy with Right of Survivorship

5. Joint Property and Community Property

D. Tenancy by the Entirety

E. Community Property with Right of Survivorship

1. Creating a CSA Before Marriage

2. Application of CSA to Separate Property

3. Revocation of a CSA

4. Community Bank Account Survivorship Rights

5. Wills and CSAs

6. When to Use CSAs

VII. Community Property in Relation to the Migrant Client

A. Introduction

B. Ceremonial, Common Law, and Putative Marriages and Meretricious Relationships

C. Overview of Definitions and General Rules

D. Management of Community Property

E. Classification of Property as Separate or Community

1. In General

2. Doctrine of Inception of Title

3. Commingling

4. Effect of How Title Is Taken

5. Transfers from One Spouse to Another

6. Presumption of Gift from Separate Property

7. Gifts from Third Parties

8. Specific Types of Property and Rights

a. Bank Accounts

b. Income

c. Appreciation in Value

d. Sales Proceeds

e. Cash Purchases

f. Purchases on Credit

g. Installment Purchases Commenced Before Marriage

h. Subsequent Improvements

i. Mineral Rights

j. Rights to Recover from Breach of Contract or Tort

k. Income Earned While Living Separate and Apart

l. Life Insurance Policies

m. Trusts

9. Characterization of Real Property by Situs and Personal Property by Domicile

10. Conflict of Laws in Classifying Separate and Community Property

a. Common Law Principles

b. Inception of Title Doctrine

c. Federal Rules for Government Bonds

11. Extraterritorial Reach of Community Property Laws to After-Acquired Property

F. Pension Benefits as Community Property

1. Right to Pension Benefits in Divorce

2. Right to Change Beneficiary

3. Federal Preemption of Community Property Laws

G. Creditor Rights in Community Property

H. Division of Community and Separate Property upon Divorce

1. Generalizations About Common Law Property States

2. Community Property in a Common Law Property State

3. Separate and Community Property in a Community Property State

I. Uniform Disposition of Community Property Rights at Death Act

1. Presumptions

2. Preservation of Community Character

3. Property in the Name of One Spouse

4. Purchasers for Value and Lenders

5. Change of Character

6. Limitations on Testamentary Dispositions

7. Creditor Rights

J. Transfer Taxes

1. Virginia

2. Montana

3. Ohio

4. Colorado

5. Attempt by Community Property State to Impose Inheritance Tax on Former Resident

K. Other Problems of Migration from Community Property to Common Law Property Jurisdiction

1. Property Remaining in Community Property Jurisdiction

2. Community Property Removed to Common Law Property Jurisdiction

3. Community Character Lost when Spouses Voluntarily Adopt Common Law Property System

4. Transmutation from Community Property to Separate Property

5. Change in the Form of Property After Removal to a Common Law Property State

6. Matrimonial Domicile vs. Actual Domicile

L. Other Problems of Migration from Common Law to Community Property Jurisdiction

1. Real Estate in Common Law Property Jurisdiction Owned by Resident of Community Property Jurisdiction

2. Community Property Used to Acquire Property in Common Law Property Jurisdiction

VIII. Special Situations and Planning Techniques

Introductory Material

A. Premarital and Post-Marital Agreements

1. The Uniform Premarital Agreement Act

2. Use of Premarital and Post-Marital Agreements in Community Property States

3. Use of Premarital and Post-Marital Agreements in Common Law Property States

4. Provisions in the Premarital Agreement of Particular Application to the Migrant Client

B. Widow's Election

1. Gift Tax Consequences

2. Estate Tax Consequences

3. Consequences to Decedent's Estate

4. Income Tax Consequences

5. Illustration

C. Gifts Under the Uniform Transfers (or Gifts) to Minors Act

1. Community Property

2. Planning for the Migrant Client

D. Transfers Between Spouses

E. Use of Revocable Inter Vivos Trusts for the Migrant Client

1. Advantages of Revocable Inter Vivos Trusts

2. Reviewing Existing Trusts

3. Multiple Trusts

a. Multiple Trust Penalty

b. Trust Consolidation

F. State Tax Law Considerations in Relocation Decisions

1. Comparison of the Taxes of the Domiciliary State with Those of the Proposed Domiciliary State

a. Death Taxes

b. Income and Personal Property Taxes

c. Sales Tax

d. Local Property Taxes

2. Jurisdiction to Tax: In General

3. Jurisdiction to Impose Income Taxes

a. Ordinarily Based on Residence

b. A Domiciliary May Not Necessarily Be Taxed

c. State of Original Domicile May Still Impose Income Tax

d. Income Subject to Tax

e. Double Taxation

f. Taxation of Estate and Trust Income

4. Jurisdiction to Tax Intangibles

5. Jurisdiction to Tax Real and Tangible Personal Property

6. Jurisdiction to Tax Gifts

G. Legal Malpractice and How to Avoid It When Representing Migrant Clients

H. Multistate Income Taxation

IX. Planning for the Move to and Arrival in a Community Property Jurisdiction

X. Planning for the Move to and Arrival in a Common Law Property Jurisdiction


WORKING PAPERS

Working Papers

Table of Worksheets

Other Relevant Materials

Worksheet 1 Premarital Agreement1

Worksheet 2 Cancellation of Premarital Agreement1

Worksheet 3 Sample Texas Community Survivorship Agreement

Worksheet 4 Sample Washington Community Property Agreement

Worksheet 5 Sample Texas Community Property Agreement

Worksheet 6 Client Letter on How to Change Domicile

Worksheet 7 Sample Jointly Funded Revocable Trust Funded with Separate and Community Property

Worksheet 8 Sample Qualified Domestic Trust Used in the Marital Part of an Inter Vivos Trust

Worksheet 9 Selected Community Property Clauses

Bibliography

OFFICIAL

Code Sections:

Treasury Regulations:

Committee Reports/Public Laws:

Treasury Rulings and Procedures:

Cases:

UNOFFICIAL

Books:

Periodicals:

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