Death and Domicile—No Joking Matter
Will New York Try to Take a Death-Tax-Bite From the Estate of Joan Rivers?

Charlie Douglas, JD, CFP®, AEP®, Editor
Email: editor@naepcjournal.org
Phone: 404.279.7890

When comedian Joan Rivers passed in September, she graciously 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 unobtrusively left to a blind trust.

More conspicuously, however, the will of the bicoastal Joanunmistakably stated from the outset 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. Not to be short on words, but is there any way to reside indefinitely on a temporary basis?

New York vs. California

Before Joan was finally laid to rest in Glendale, Calif., her similarly bicoastal will was filed in New York State Surrogates Court. The will also contained a provision that its validity, interpretation and administration shall be governed by New York; provided that if Joan was domiciled in California, then California law shall apply.

Ordinarily, wills are filed and probated in the state county where the decedent was domiciled, so what exactly is going on in New York? We can only speculate.

Maybe the executors sought after New York for a less costly and less complex probate process for personal property assets or to handle a probate for real property located in New York? Or perhaps it was important to the executors to establish a solid jurisdictional footing in New York in pursuing a wrongful death claim against Yorkville Endoscopy? Or could it be that good old tax minimization—with a Hannah Montana and Miley Cyrus, “Best of Both Worlds” outcome, was the intended result?

Income vs. Estate Tax

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 (8.82 percent New York State tax plus 3.876 percent New York City tax), as compared to California’s more onerous 13.30 percent for its uppermost 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 under the provisions of the Economic Growth and Tax Relief Reconciliation Act.

Should New York law prevail the estate tax stakes could be in the tens of millions. The estimated value of Joan’s estate vastly exceeds New York’s current estate exemption amount ($2,165,625) by more than 5 percent, and thus, the exemption is forfeited. Therefore, there would be taxes due on the full value of her estate, at a top rate of 16 percent when the estate exceeds $10 million.

Even if Joan was a non-resident of New York and not domiciled there, if she owned real property (for example, if her penthouse was considered a condo) or tangible personal property in New York, then New York may levy a separate estate tax against that property. However, if Joan’s penthouse were a cooperative, then New York courts and the Department of Taxation and Finance have held that an interest in a New York cooperative apartment is intangible personal property and is exempt from New York estate tax.

For the state estate tax purposes, whether the laws of New York or California should apply will often turn on which state Joan Rivers was deemed to be domiciled in at the time of her death.

Is My House Also My Domicile Home?

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.

In Joan’s case, she could still be a resident of New York State for income tax purposes, even if her domicile was in California, as long as she maintained a permanent place of abode in New York State for more than 11 months of the year and as long as she spent 184 days or more in New York State during the tax year.

In California for income tax purposes, she would have been presumed to be a resident if she spent in the aggregate more than nine months there, but she still could have been domiciled in New York. Domicile in California is the one location with which, for legal purposes, a person is considered to have the most settled and permanent connection. It is the place where they intend to remain and to which, whenever they are absent, they have the intention of returning.

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;
• Employment;
• 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.

Double Taxation and Multi-State Death Taxes— M’m! M’m! Not So Good!

It should be noted that the Constitution doesn’t prohibit double taxation; there’s no “double jeopardy” when it comes to taxation. Two or more states could each conclude that it’s the taxpayer’s state of residence. In fact, notwithstanding multi-state tax offset/credit agreements, double taxation is a real risk for a taxpayer treated as a dual resident.

Likewise, there’s nothing that constitutionally prohibits two or more states from independently deeming a decedent as domiciled in their state for estate tax purposes.

While there are a bevy of cases supporting this premise, none is more famous or punitive than the estate of Campbell Soup capitalist, Dr. John T. Dorrance. John, president and founder of the Campbell Soup Company and originator of the canned soup industry, died on Sept. 21, 1930 in New Jersey.

Preoccupied with saving inheritance taxes and ensuring that his family would retain sole ownership of the Campbell Soup Company, John wrote six versions of his will and added nine codicils. However, on his death, both New Jersey and Pennsylvania each assessed an inheritance tax against his estate, which at the time was worth more than $115 million.

Five years before his death, John, who was then domiciled in New Jersey, purchased another residence in Pennsylvania, where he and his family lived most of the time.

Even so, John’s business remained in New Jersey, he kept his residence in New Jersey, he voted in New Jersey and otherwise overtly indicated his intentions (verbally and in writing) to retain his residency and domicile in New Jersey. After John died at his residence in New Jersey, the estate probated his will in New Jersey.

The estate initially preferred to pay the New Jersey inheritance tax of some $12 million (it being the cheaper of the two) and protested vehemently to the Supreme Court of Pennsylvania that no state of Pennsylvania inheritance tax was due because John was clearly domiciled in New Jersey.

The court disagreed and directed the assessment of a transfer tax of some $17 million under the premise that John was domiciled in Pennsylvania at the time of his death. Thereafter, the estate appealed to the U.S. Supreme Court, which refused to grant a hearing.

Ironically, it was those well-orchestrated arguments proffered by the estate to the Supreme Court of Pennsylvania that New Jersey seized on in successfully enforcing its own inheritance tax.

In the same way, the Supreme Court of New Jersey ultimately determined that John was domiciled in New Jersey and that Pennsylvania had no jurisdiction to levy an inheritance tax. The estate again appealed to the U.S. Supreme Court, which once more refused to hear the case.

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.

The estate of Dr. John Dorrance experienced horrendous multi-state death tax consequences which the estate of Joan Rivers need not fear since California has no inheritance tax.

If California was truly Joan’s 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 Melissa Rivers?

Most importantly, was California where she reportedly occupied a bedroom in Melissa’s home her permanent place of abode where she had the most settled and permanent connection to, or was that connection more temporary and transitory? Could it be that the connection needed for domicile was still in New York with her Manhattan penthouse for the native born New Yorker?

Ironically, the last episode of Joan & Melissa: Joan Knows Best?, aired in May of 2014, and was titled, ” Get the F… Out!,” where Joan plotted to get Melissa to kick her out of Melissa’s house. Perhaps even more telling, Joan in her last big interview may have delivered the decisive domicile clue.

In late July of 2014, Joan Rivers spoke candidly to reporter, Tim Teeman of The Daily Beast at The Russian Tea Room in New York City. When Teeman asked Joan about not working and just living off her money, she responded, “I don’t have money to do that. I could pull my living in and live OK, but I don’t want to live OK. I’m very happy to live in my penthouse, very happy I can pick up a check, very happy to have a great life, and be able to spread my wealth a little bit.”

Most assuredly, Joan’s advisors urged her to act accordingly and to maintain accurate, reliable records that bolster her will’s contention that she’s domiciled in California. We can almost see the plethora of banker’s boxes that are now piled high.

Regarding death, Joan once cracked, “When I die (and yes, Melissa, that day will come; and yes, Melissa, everything’s in your name), I want my funeral to be a huge showbiz affair with lights, cameras, action. I want Craft services, I want paparazzi and I want publicists making a scene! I want it to be Hollywood all the way.”

Considering the fanfare and massive tabloid coverage surrounding Joan’s death, she likely received the Hollywood send-off she once joked about. Those tending to her estate’s affairs may feel much more solemn—perhaps wishing that New York lets Joan, in her accustomed fashion, have the last word in her will as to her state of domicile.

Reproduced courtesy of LISI (Leimberg Information Services, Inc.) and WealthManagment.com.

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Charlie Douglas, JD, CFP®, AEP® has practiced in the business, tax, estate and financial planning areas for over 25 years. He holds a J.D. from Case Western Reserve School of Law and possesses the Certified Financial Planner® and an Accredited Estate Planner® designation. As a senior vice president for a leading global wealth management institution, Charlie specializes in comprehensive planning solutions and trust fiduciary services for business owners, high net-worth individuals and their families. Charlie is a board member of the National Association of Estate Planners & Councils (“NAEPC”) and is the current editor of the NAEPC Journal of Estate & Tax Planning.

This information is provided for discussion purposes only and is not to be construed as providing legal, tax, investment or financial planning advice. Please consult all appropriate advisors prior to undertaking any of the strategies outlined in this article, many of which may involve complex legal, tax, investment and financial issues. This communication is not a Covered Opinion as defined by Circular 230 and is limited to the Federal tax issues addressed herein. Additional issues may exist that affect the Federal tax treatment of the transaction. The communication was not intended or written to be used, and cannot be used, or relied on, by the taxpayer, to avoid Federal tax penalties.