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For many people, the past year accelerated decisions to move. Whether you are seeking more space while working from home, moving closer to family, trying to escape the harsh winters, considering a second home for retirement, or moving out of state for tax reasons, it’s important to review your wealth management strategy first and consider the impact the move will have on your finances. Here are some things you need to think about from a financial planning, tax, and estate planning perspective if you have moved, or are planning to move, out of state.
Over 15.9 million people moved last year during the pandemic, according to the United States Postal Service.1 Whether seeking more space while working from home, moving closer to family, trying to escape the harsh winters, or considering a second home for retirement, it’s critical to look over your finances prior to your big move.
“Finding a new home, packing boxes, and hiring movers seem like the most important steps when moving to a new state. But looking at your overall wealth management strategy should be the first thing you do before you start looking at real estate listings,” said Kara Duckworth, managing director of client experience. “Having a complete picture of your financial situation will help you plan for both expected and unexpected costs you might face during this transition.”
Moving out of state can cost roughly $4,300 on average,2 so it makes sense to plan for these costs before making the move. Not only that, think through what changes you’re likely to encounter depending on your geographic location, the weather, and desired lifestyle. “Research what living expenses could be in your new home and update your budget to account for these changes,” said Duckworth. “For example, if you’re moving from Arizona, where you painted your home every 10 years, to an oceanfront home in South Carolina, you’ll be surprised to learn that you might need to paint your home every three to five years due to the moisture and salt in the air degrading the paint and trim.”
Even utility costs can be dramatically different, depending on how they are delivered or used. Propane and heating oil costs could be more expensive than natural gas systems in some parts of the country. If you move to warmer climates, you may be surprised by how much you need to run your air conditioning in the summer (or you might want to install solar panels to offset your energy bill).
Eyeing a new home with a swimming pool? Consider the maintenance costs of your outdoor spaces. If you are used to using your swimming pool year-round and move to a new state where you need to winterize the pool and landscaping, you need to include the costs for the annual opening and closing process or how the maintenance changes from a lawn mowing service in the spring and summer to a snow clearing service in the colder months.
If you’re covered under your employer’s healthcare plan, “you’ll want to review your health insurance coverage to see if you’ll need to change or update your plan based on your new state’s rules. For example, if you have Blue Shield coverage in New York, you may not have access to the same coverage in Texas even though it’s the same provider. If you’re retired or self-employed, look at the cost of coverage and what services are covered in your new state,” added Duckworth.
“From a tax perspective, it’s important to start having taxes withheld in your new state rather than your old one,” said Matthew McCarthy, senior tax advisor. “Otherwise, come tax time, you may end up owing a significant balance to your new state.” Talk to your tax professional about preparing a tax projection to see what your taxes will be in your new state so that you can accurately plan for your tax withholding or estimated tax payments.
If you have flexibility on when you can move to your new state, it might be worthwhile to adjust the timing so that you can maximize your income. “See what your tax rates will be in your new state compared to your current state. If your new state will have higher tax rates, it may make sense to try to receive taxable income (like capital gain income, etc.) before you move, because this income will be taxed at a lower rate,” added McCarthy. “Alternatively, if you’re moving to a lower-tax state, it may make sense to delay receiving this income until after the move. If you’re self-employed, you may need to make estimated tax payments to your new state based on income earned after the move. Your tax professional can help you review any state-specific laws that may affect this strategy.”
“Although a state may honor estate plan documents created in other states, it’s best to update your estate plan with an eye toward the state-specific laws in your new state,” said Jenna Elliott, managing attorney of estate planning.
Community property and common law ownership of property differs by state. Nine states have some form of community property laws, meaning any income or real property acquired during the marriage belongs to both partners, while the other 41 states have common laws where assets acquired by one partner belong to that person unless the property is listed under both spouses. If you’re moving from one state to another where you’re likely to be impacted by a change to this ownership law, you’ll want to examine how your assets, income, pensions, and retirement accounts will be affected in the event of a divorce or death. Your wealth advisor can help you understand how to incorporate these changes into your wealth plan.
“Another factor to consider are the executors you have chosen for your estate. For example, in Nevada, out-of-state executors are not allowed. And in New York, you can’t have 2 health care agents serving simultaneously on your behalf,” commented Elliott. “If you don’t have an estate plan, look at the estate tax laws in your new state to find out how the probate process is handled. If you’re moving to a state with a complicated and costly probate process, you may want to establish a revocable trust. This will help you bypass the probate process and streamline the administration of your estate.”
“High-tax states are performing residency audits more frequently these days. Make sure you’re taking steps to protect yourself so you can show that your move is legitimate and not just for tax purposes,” said McCarthy. Establish that your new state is your true home and not your old state, i.e., that your main connections are in the new state, that you’re spending holidays in the new state, and that your household items are in the new state. Also register for your driver’s license in the new state, register to vote there, and change your address on other legal documents to help further support your case.
To avoid double-taxation, each state provides a credit for taxes paid to other states while you lived in that state. Make sure you claim these credits. A tax professional can help you determine the exact amount of these credits.
This insurance protects your items for your move and can be especially important if you’re hiring a moving company to pack and load your items to be shipped. Before anything is packed, take an inventory of all your items by taking pictures or a video of every room, closet, valuable, drawer, etc. so you have a good record of the condition of your items.
If you have a health condition that requires you to see a medical specialist, you should investigate if that specialization is offered at a convenient location to your new home or if you would need to travel to see such a specialist. If you have any current medications that require a prescription, have these filled prior to moving.
“Also, check with your insurance company/professional if they are licensed in your new state. If you’re moving across town or within the state, your insurance professional can easily provide new coverage,” said Terry Bobo, director of insurance solutions. “If you’re moving out of state, your insurance professional can still help by giving you information about what kind of coverage you should have for your home, auto, and other valuable items.”
Other things to consider:
If you are purchasing a new home, it’s very important that you understand the value of your home and what it would cost to replace the home based on today’s labor costs, materials, per square foot values, and more. Some homes are much more difficult or expensive to insure based on geography and factors beyond our control, such as hurricanes, earthquakes, or wildfires.
“Before you sign on the dotted line, be sure to talk to a professional who thoroughly understands the property you are buying, the area you’re moving to, and any special or unique considerations that may affect the price of insurance to cover your new home,” added Bobo. “Also, review your coverage annually to ensure that your coverage is keeping up with increasing real estate values. The wrong time to find out that you are underinsured is when you really need your insurance the most.”
For your auto coverage, work with a licensed professional in your new home state. Auto insurance laws vary from state to state. For example, states that have “no-fault” laws have different considerations than states with “at fault” laws. Do your research and ask your insurance professional questions to ensure you have the right insurance coverage for you, your vehicles, and your family for your state.
Also, consider purchasing an umbrella policy. Umbrella policies are offered in $1 million increments and are relatively inexpensive, providing an extra layer of protection for your home, auto, and other assets.
We encourage you to reach out to your wealth advisor before you consider big life events, like a move out of state. Your wealth advisor looks at your financial life through a holistic lens and can help you plan for all 8 tips mentioned here and more, ensuring that your wealth plan supports every stage of your financial journey.
1 “Coronavirus Moving Study: People Left Big Cities, Temporary Moves Spiked In First 6 Months of COVID-19 Pandemic,” MyMove.com, 2/17/21.
2 “How Much Does It Cost To Move Out Of State?” homeadvisor.com.
Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. Employees of Mercer Global Advisors serve as officers of MAIS. MAIS provides individual life, disability, long term care coverage, and property and casualty coverage through various insurance companies. For Mercer Global Advisors clients who wish to purchase insurance products, MAIS has entered into a non-exclusive referral agreement with Strategic Partner(s), where the Strategic Partner will provide necessary services relative to the marketing, placement, and servicing of the insurance products, including without limitation preparing and presenting illustrations, supporting the underwriting process, assisting with the completion and execution of applications, delivering policies, and servicing in-force business. MAIS and the Strategic Partner will be listed as “co-agents” on the policies. While Mercer Global Advisors does not receive a referral fee, MAIS and the Strategic Partner each receives a percentage of the commission revenue. More information about MAIS and our Strategic Partners may be found in our Form ADV 2A on merceradvisors.com.
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