Will your estate plan work if you move to another state?

Most people assume an estate plan drafted correctly once stays correct forever, even after a cross-country move. Unfortunately, the reality is much more complicated, and a simple change of address can sometimes derail your wishes for the future.

Estate plans are governed by the laws of the state in which the person resides. These laws can differ in ways that render a plan validly executed in one state as not enforceable in another. This can have a disastrous result in the distribution of your estate.

A recent article in Senior Lawyers¹, an Illinois Bar Association newsletter, reported on just such a case which occurred in Illinois and Florida.  In this case, a trust was originally executed in Illinois. The grantor, Ralph Falkenthal, was married with children who were the beneficiaries of his estate plan. His wife died, and he subsequently moved to Florida. He then met Donna Lindenau who resided with him in Florida. Ralph executed an amendment to his trust that was prepared by his Illinois attorney and signed by him in Florida. The amendment was to transfer his Florida property to Donna. Shortly after the amendment was signed, he died.

Ralph’s children filed an action in Florida to invalidate the amendment because it was not executed before two attesting witnesses as required under Florida law.  The trust and its subsequent amendment were validly executed under Illinois law but did not comply with Florida law which required two attesting witnesses for the execution of a trust.² The Florida appeals court declared the amendment invalid, which meant that Donna would not receive the Florida property; it went to the children instead³. Everyone involved (including the Court) agreed that Ralph intended for his Florida residence to go to Donna, but as a result of the failure to execute the amendment in accordance with Florida law, his intentions were frustrated.

This disastrous result could have been avoided, and Ralph’s wishes could have been fulfilled. To ensure that your intentions are followed, review your estate plan prior to moving to another state. This review should involve consulting with both your estate planning attorney, and an estate planning attorney licensed in the new state of residence (your estate plan attorney can give you a referral). This is the best way to ensure your estate plan can be implemented in the new state and to make any necessary revisions.

Laws governing estate plans can vary significantly from state to state, and are subject to different treatment when the grantor of the estate plan moves around the country. The following are a few examples:

• What state law applies? Generally, that will be the law where the grantor resides, but a different state law may apply if designated by the trust instrument or if another state has the most significant relationship to the estate. In the Lindenau case, Florida law governed the execution requirements of the amendment executed in Florida even though the trust specified that Illinois law applied. Ralph’s Illinois attorney was unfamiliar with Florida law, and this issue likely could have been avoided by consulting with an attorney in Ralph’s new state of residence.
• Are the documents validly executed? Your estate plan must be validly executed in the state where you reside on the date of your death, which is why frequently reviewing and updating your estate plan is so important. Our Lindenau example demonstrates how a minor difference in state law can invalidate a person’s desires for their estate.
• How will the estate be taxed? Some states have state estate taxes (Illinois) or inheritance taxes. Others, like Missouri, do not.
• Will the trust terms be enforced? Some states allow trusts to be amended after the death of the trust grantor through trust decanting, a process that allows a trustee to move assets from an existing irrevocable trust into a new one with updated and more favorable terms. In addition, trustee duties and beneficiary rights vary from state to state.
• How will beneficiaries be taxed on distributions? That will depend on where the beneficiaries reside at the time of distribution. Income tax laws vary from state to state.
• Will the asset protections in the plan be recognized? Some states have very liberal rules regarding protection of the assets of the estate planner. Other states have creditor protection laws that may prevent asset protections in the estate plan. Bankruptcy laws also apply to asset protection.

Moving to new states occurs frequently in our society, adding another level of complexity to estate planning and another reason for periodic review of your estate plan, especially when significant changes occur. After all, what is the value of a good estate plan if the planner’s intentions are not carried out!