Was Joan Rivers domiciled in New York or California? Think it doesn’t matter? Think again! This little distinction could cost her estate millions and millions of dollars!!
When comedian Joan Rivers passed in September, she left her estimated $150 million estate to family, friends, employees and charities. But the specifics of her dispositive provisions remain largely unknown because the bulk of her estate was left in trust.
However, as we have discussed before, the document we can see because it is completely public is her Will and it unmistakably states that she was a resident of New York, but then straightaway declared her state of domicile (“where I intend to reside indefinitely on a permanent basis”) to be in California.
From an income tax standpoint, the late Joan may have wanted to be taxed on her non-sourced California income as a resident under New York law. Even though New York is known as the state with the highest tax burden, Joan may have actually paid less in taxes in New York as a top earner compared to California’s more onerous over 13% for its highest earners.
More importantly, from an estate tax perspective, the estate would very much want to avoid New York’s burdensome estate tax and to benefit from the laws of California, which hasn’t had a state estate tax for those domiciled there since Jan. 1, 2005, when it was phased out.
Should New York law prevail, however, the estate tax could be in the tens of millions!!
The estimated value of Joan’s estate exceeds New York’s current estate exemption amount ($2,165,625 in 2014) by more than 5 percent, and in NY that means the exemption is forfeited. Therefore, there would be taxes due on the full value of her estate, at a top rate of 16 % when the estate exceeds $10 million.
Even if Joan Rivers was a non-resident of New York and not domiciled there, if she owned real property (for example, her penthouse condo) or tangible personal property in New York, then New York may levy a separate estate tax against that property.
For the state estate tax purposes, whether the laws of New York or California apply may often turn on which state Ms. Rivers was deemed to be domiciled in at the time of her death.
Where and What is Domicile?
Domicile is something that is discussed at length with our nonresident alien/ foreign national clients because where they are domiciled my subject them to United States Estate taxes they never thought they would have to pay!
As a general rule, while an individual can have many residences, she can have only one domicile. A person may be considered a resident of the state where she currently lives (New York), but still be considered domiciled in another state (California) where the individual intends to return.
Domicile is typically a question of fact based on the individual’s intent to remain in, or return to, a particular state and her permanent place of abode.
Factors Determining Domicile
While no one factor is determinative of domicile, courts generally look to a variety of circumstances such as:
- Physical presence or amount of time spent in a state;
- Residence (people often have more than one) in the state;
- Where family (spouse & children) primarily reside;
- Bank accounts;
- Location of real property and investments;
- Voter registration;
- Public library card;
- Country club, place of worship and social clubs;
- Services of primary professionals (for example, attorney, accountant, dentist, physician);
- Where estate planning documents are done;
- Motor vehicle registration and driver’s license;
Domicile is sticky, and once established, it’s not easy to change even though an individual may have a multiple residences. There must be an objective intent to abandon the old domicile and to establish a new one.
Individuals who relocate to other states or individuals with residences outside their state of domicile would do well to maintain accurate, reliable records to support the contention that they aren’t residents of or domiciled in a particular state and to retain such documents for several years. Maintaining contemporaneous diaries and detailed corroborating records as to one’s daily whereabouts can prove to be determinative.
It’s because the burden of proof in tax matters is often on the taxpayer that reliable records are so important. Should New York’s Department of Taxation and Finance decide that Joan was domiciled in New York State, the estate could bear the burden of proving that she wasn’t.
There’s nothing that bars New York State from independently asserting that Joan was domiciled there. Joan’s pronouncement of being domiciled in California can easily be viewed as self-serving and may not ultimately be found to be in line with the objective facts.
Your Actions Speak Louder Than Words
The law is well settled that in the determination of domicile, a person’s expression of desire may not supersede the effect of his or her conduct. Recitals in Wills are not given particular weight in determining domicile in comparison with the evidence supplied by the daily life of the individual and his or her acts and conduct.
If California was truly Ms. Rivers’ place of domicile then Joan must have had the intention of making California her true, fixed, permanent home and principal establishment. But questions regarding her residency and true place of domicile likely remain. Did Joan change her residency and/or her domicile to New York when she moved from Los Angeles to Manhattan in 1988? If so, did she successfully change her residency and/or domicile back to California when Joan co-hosted the E! celebrity fashion show Fashion Police and starred in the reality series Joan & Melissa: Joan Knows Best? (2011-2014) with her daughter?
We will all know soon enough…