By Gloria Petroni, Petroni Law Group
The United States is experiencing increasing mobility from state to state, and it is no secret that many are choosing to call Nevada home. Specifically, Nevada’s business friendly environment has attracted those who own a business. With that comes a need to consider some nuances specific to Nevada that may not have been present elsewhere.
With many families moving from state to state, an often-asked question is whether or not a will or trust created in another state is valid in Nevada. Generally speaking, each state law recognizes wills and trusts executed in other states that comply with the state law where the will or trust was executed.
However, there are often statutes embedded in trusts created in certain states which would require Nevada to use the law of the state which was cited in the trust. This could complicate matters where a Nevada court is likely not familiar with the law cited. In an ideal situation a better practice is to have a Nevada estate planning lawyer review the will or trust at the time of relocation and create an amendment which removes the law of the foreign state from your estate planning document.
In the case of durable powers of attorney for health care and durable powers of attorney for financial matters, they are often specifically created by local statutes and thus these documents may have to be drafted according to Nevada law so there is no confusion by a medical provider or financial institution as to what the foreign law provisions mean and how they apply. The 2019 legislature just amended Durable Powers of Attorney again by Senate Bill 540.
It is also important to note that Nevada law discriminates against out of state administrators but not against out of state executors. Executors are people named in a will (and then appointed by the Court) to handle the estate after death. Administrators handle the estate if there is no will or if no Executor named in the will is willing or able to serve. Thus having a will is always preferable as someone trusted may be appointed, otherwise, a Nevada resident or Nevada Public Administrator will be appointed to administer an estate if not chosen by the deceased.
In principal, community property states such as Nevada, California, Arizona, and Texas require a relatively equal division of assets and debts acquired during the marriage. There are significant differences between these states, however. In Nevada, the community property and debt continues until the actual date of divorce whereas there are states such as California that stop the accrual of community assets and debts once the parties separate. This can become quite significant in divorce proceedings and can determine numerous financial outcomes. There are different treatments in each state as to payment by a party of community debt.
California has become particularly aggressive in assessing income tax on individuals who claim they are residents of Nevada and that their presence in California is temporary.
The factors below may be used to evaluate whether the overall presence of an individual in California is temporary or permanent, is as follows:
- The number of days spent within the state of California weighed against the number of days spent within other states
- Where taxpayer receives bills and personal communications
- Where is the taxpayer’s point of departure and point of return with respect to vacations
- Where a taxpayer owns a second home in California, and sells without repurchasing the primary residence in another state
- Where taxpayer’s spouse/children reside
- Where children are born, married and raise their own families
- Where children attend school
- Where the taxpayer’s family receives medical and dental care
- Location of owned and rented real property, and where real property is owned in multiple states, the respective size/value may be a factor
- Location of a home upon which taxpayer claims homestead and tax exemptions
- Location of vacation homes
- Location of burial plots
- Location of bank, checking, savings and credit accounts
- Location of safe deposit boxes
- Where taxpayer is employed and/or performs contracted services
- Where taxpayer is paid or receives substantial income
- Location of taxpayer’s family business or other business activities
- Where taxpayer serves as a director, officer or manager of a business
- Where taxpayer holds professional licenses and/or memberships
- Where taxpayer receives professional (i.e. legal, accounting, or investment) services
- Where legal documents (i.e. trusts, wills, powers of attorney, and contracts) are prepared and located
- Where legal documents are to be given effect
- Where tax returns are prepared and filed
- Location of taxpayer’s automobile insurance/registration
- Location of driver’s licenses for both taxpayer and spouse
- Where taxpayer and spouse are registered to vote
- Where taxpayer and/or other witnesses may swear—through affidavit—that taxpayer resides
- Location of membership in social, civic or religious organizations and where donations are made thereto
In the event residency is called into question by another state looking to assess income taxes the following steps can be taken to reinforce Nevada residency. These are worth addressing upon relocation as some states have become more aggressive.
- Update estate planning and testamentary documents in Nevada and consider replacing California trustees, attorneys-in-fact, executors, and conservators with fiduciaries located in Nevada;
- Establish a Nevada self-settled spendthrift trust pursuant to NRS 166 and transfer your assets thereto;
- Transfer your assets to a Nevada limited-liability company, limited partnership or closely held corporation to receive Nevada’s well-regarded charging order protection;
- File partial year and final state income tax returns in former state at time of exit;
- Record a “Declaration of Domicile” affidavit pursuant to NRS 41.191; and
- Be aware of credit/debit card transactions, travel records, cell phone statements and other documented evidence which might prove time spent in former state.
While each state has essentially the same type of entities such as corporations, limited liability companies etc., each has unique filing requirements. Each state will require different business licenses to operate at the state level. The IRS has its own set of guidelines for these entities in regard to tax compliance. Fortunately, Nevada is a relatively easy and affordable place to do business. A Certified Public Accountant is best suited to advising you of the appropriate entity for your business, and the best place to file your entity since income tax laws will often control where the entity is to be formed.
Nevada can be a very advantageous place to live and do business. Favorable tax structures, business friendly practices and quality of life factors make the state attractive to many. Those relocating can and should take appropriate steps to ensure they are able to enjoy the full benefits of being an official Nevada resident.