Residency Vs. Domiciling

Understanding the Difference Between Residency and Domiciling

Residency and domiciling are two terms that are frequently used interchangeably. However, when it comes to legal, financial, and tax matters, they have different implications. If you're planning to live in a new state, country, or territory, it's important to understand the difference between residency and domicile and how they affect your rights, obligations, and benefits.

Defining Residency and Domicile

What is Residency?

Residency refers to the place where you live for a certain period of time, usually six months or more, and where you have your principal abode, or dwelling place. Your residency can be determined by different factors, such as physical presence, intent to remain, financial ties, social ties, and other objective indicators.

For example, if you rent or own a house, apartment, or mobile home in a state, and spend most of your time there, you're considered a resident of that state. If you work in a state, but commute from another state, you may be considered a non-resident, depending on the laws and rules of each state.

What is Domicile?

Domiciling, on the other hand, refers to the place where you have your fixed, permanent, and principal home, and where you have the most significant and lasting connections. Your domicile is not determined by the mere fact of your physical presence, but by a combination of factors, such as intent to remain, family ties, business ties, property ownership, and other subjective indicators.

For example, if you were born and raised in New York, and have always considered it your home, even if you spend most of your time in Florida or California, your domicile is still New York, unless you prove otherwise by changing your intent and actions.

Factors Determining Residency and Domicile

Physical Presence

Physical presence is an important factor in determining residency, but it's not enough by itself to establish domicile. To be considered a resident, you need to show that you're physically present in the state for a certain period of time, and that you have a significant connection to the state, such as a job, a home, a driver's license, or voter registration.

For example, if you spend three months in Florida during the winter, but have no other ties to the state, you're not a resident of Florida, but a visitor or a seasonal resident. If you spend more than six months in Florida, and have a permanent address there, you're likely a resident of Florida, unless you maintain stronger ties to another state or country.

Intent to Remain

Intent to remain is a subjective factor that can override the objective factors of physical presence and ties. To establish residency or domicile, you need to show that you have a genuine and fixed intention to stay in a place for an indefinite or significant period of time.

For example, if you move to a state for a temporary job, or to attend college, but don't plan to stay there permanently, you're not a resident or a domiciliary of that state, even if you spend several years there. Conversely, if you move to a state with the intention of making it your permanent home, and take concrete steps to implement that intention, such as buying a house, registering to vote, or getting a driver's license, you're likely a resident or a domiciliary of that state, even if you spend part of the year elsewhere.

Financial and Social Ties

Financial and social ties can also influence your residency or domicile status, especially if they demonstrate your integration into the local community and economy. Financial ties can include owning property, paying taxes, having a bank account, getting paid in the state, and receiving public benefits. Social ties can include having family members, friends, or business partners in the state, attending religious or cultural events, and participating in civic or charitable activities.

For example, if you own a vacation home in a state, but have no other ties to it, you're not a resident of that state, but a non-resident property owner. If you have a job, a home, a bank account, and social connections in a state, but spend part of the year in another state, you're likely a resident of that state, unless you maintain stronger connections elsewhere.

Legal Implications of Residency and Domicile

Taxation

One of the most significant legal implications of residency and domicile is taxation. Each state, territory, and country has its own tax laws and rules, and determines your liability based on your residency or domicile status, as well as your income, property, and other sources of revenue. For example, if you're a resident of Florida, you don't have to pay state income tax, but if you're a resident of New York, you do.

Similarly, if you're a domiciliary of the United States, you're subject to federal estate and gift tax on your worldwide assets, but if you're a domiciliary of a foreign country, you may be subject to different tax laws and rates.

Voting Rights

Another legal implication of residency and domicile is voting rights. You can only vote in the elections of the state or district where you're a resident, and where you're registered to vote. If you're a resident of California, for example, you can't vote in the elections of Texas.

Similarly, if you're a U.S. citizen and a domiciliary of a U.S. state or territory, you can vote in federal elections, such as presidential and congressional elections, but if you're a domiciliary of a foreign country, you're subject to different voting eligibility requirements and procedures.

Estate Planning

Estate planning is also affected by your residency and domicile status, as it determines which laws and rules govern your will, trusts, and other estate planning documents. For example, if you're a resident of Texas, your will must comply with the Texas Probate Code, but if you're a resident of New Jersey, your will must comply with the New Jersey Uniform Probate Code. Similarly, if you're a domiciliary of the United States, your estate may be subject to federal estate tax, but if you're a domiciliary of a foreign country, you may be subject to different estate tax laws and exemptions.

Changing Your Residency or Domicile

Steps to Establish a New Domicile

If you want to change your domicile from one state or country to another, there are several steps you need to take to demonstrate your intent and actions:

• Find a new place to live that you consider your principal and permanent home, and where you have your most significant ties and connections;

• Cut ties with your old state or country, such as selling your old home, canceling your old lease, terminating your old employment, and ceasing your old business;

• Establish ties with your new state or country, such as buying a new home, signing a new lease, getting a new driver's license, registering to vote, and joining local clubs or organizations;

• Show evidence of your intent to change your domicile, such as filing a Declaration of Domicile, updating your estate planning documents, and notifying your friends, family, and business partners.

Proving Your Intent to Change Residency

Changing your residency from one state or country to another is usually easier than changing your domicile, as it depends on objective factors such as physical presence and financial ties. However, you still need to show that you have a genuine and fixed intention to make a new state or country your principal and permanent home, and not just a temporary or partial one.

To prove your intent to change your residency, you can take the following steps:

• Spend most of your time in the new state or country, and limit your time in the old state or country;

• Establish a new address and phone number in the new state or country, and use them for all your legal and financial transactions;

• Register your car, boat, or other vehicles in the new state or country, and get a new driver's license and insurance;

• File your tax returns and pay your taxes in the new state or country;

• Use your new state or country's address for your credit cards, bank accounts, and other financial instruments;

• Get involved in the local community, such as by volunteering, attending events, and joining clubs or organizations;

• Notify your old state or country of your change of address, and cancel your old voter registration, driver's license, and other documents.

Common Scenarios and Examples

College Students and Residency

College students are a special category of residents, as they often have two or more homes during their academic years and vacations. To determine their residency for tax and voting purposes, colleges usually ask their students to fill out a domicile and residency affidavit, which states their intent and actions regarding their principal and permanent home.

For example, if you're a college student from New York, attending college in California, and spending your summers in Florida, you need to decide where you consider your principal and permanent home, and where you plan to return after graduation. If you consider New York your home, and intend to return there after college, you're a domiciliary of New York, even if you spend most of your time in California or Florida. If you consider California or Florida your home, and intend to stay there after college, you're a domiciliary of California or Florida, depending on your ties and connections.

Snowbirds and Dual Residency

Snowbirds are people who spend part of the year in one state or country, and part of the year in another state or country, usually to escape the cold winters or hot summers. Dual residency can have legal implications for taxation, voting, and estate planning, as both states or countries may claim the person as a resident or a domiciliary.

For example, if you spend six months of the year in New York, and six months of the year in Florida, both states may claim you as a resident, and tax you on your income, property, and other sources of revenue. To avoid double taxation, you need to follow the tax laws and rules of both states, and file your tax returns accordingly. Similarly, if you have a will or a trust, you need to specify which state or country's laws and rules apply to each asset and beneficiary, and avoid conflicts or ambiguities.

Expatriates and Domicile

Expatriates are people who live and work in a foreign country, and may or may not maintain their ties and connections with their home country. Domicile can have legal implications for expatriates, especially if they're subject to different tax laws and rules than their home country, or if they have different estate planning needs and objectives.

For example, if you're a U.S. citizen, but live and work in Japan, and plan to retire and die there, you may want to establish a domicile in Japan, to avoid the complex and expensive U.S. tax and estate planning laws. To establish a domicile in Japan, you need to follow the same steps as for changing your domicile within the U.S., and demonstrate your intent and actions to make Japan your principal and permanent home.

Conclusion

Residency and domicile are two concepts that have different legal, financial, and tax implications, depending on the laws and rules of each state, territory, and country. Understanding the difference between residency and domicile can help you make informed decisions about where to live, work, and retire, and how to benefit from the rights and privileges of each place. Whether you're a college student, a snowbird, or an expatriate, it's important to keep track of your residency and domicile, and to consult with a legal and financial advisor if you have any doubts or questions.