Moving to a New State? Consider these Three Factors First

Jun 3, 2021 Willow Creek Wealth Management Posted in Articles, NBBJ

Originally published in North Bay Business Journal You are not alone if you are considering a move to a new state. In 2018 and 2019, the US Census Bureau estimated that 7.6 million Americans, or 1.5% of the population, moved to a new state. That rate has likely accelerated following the Coronavirus pandemic’s effect on work, health, family, and friends, or simply a catalyst for something new. Add to that, in California at least, the threat of wildfires and ever-increasing housing costs, and many people are looking seriously at relocating. Although making a change can be an exciting fresh start, there can be unintended and unexpected financial consequences and benefits to making a move. Three main factors to consider are cost of living adjustments, tax implications, and legal changes.

Cost of Living Adjustments

When evaluating costs, it is vital to assess expenses relative to your employment and the outlook on your earnings opportunity. An "earner" has different needs and expenditures than a retiree, and your personal budget and spending items should be researched ahead of the move. Any move – not just one across state lines – can raise or lower your cost of living. Keep in mind that costs can vary significantly from one community to the next, even in the same state or region. Here are some areas that are worth a closer look:

  • Housing costs: You not only want to consider the purchase price and affordability of the home itself, but also related costs like property taxes, homeowner insurance, and cost of skilled labor. It is generally recommended to rent in an unfamiliar region to gain a sense of the neighborhood and community surroundings before making the significant investment of a home purchase.
  • Transportation costs: Time is your most precious commodity, so it is essential to review commute traffic and drive times along your primary lines of travel. How will your morning commute to work be? Where is the nearest airport and what are the flight schedules? Will there be nearby entertainment and health facilities?
  • Healthcare costs and providers: Although the Affordable Care Act of 2010 has made it easier to obtain new health insurance and transfer providers, healthcare-related costs can vary wildly from state to state. The retirement population especially will want to take a close look at current health care costs and options for care as well as review the long-term trends and projections.

Tax Implications

Lower-income or lower costs may not necessarily translate to lower taxes. When you are evaluating the tax impact of a move, you must consider local property and sales tax, along with state income and estate tax. Unless you live in one of the seven states with no personal income tax, most income tax states will tax residents on all worldwide income while residing in that state. In addition, you would still be liable for state income taxes on any investment-related income left in your prior state, such as a rental property. On the topic of investments, you may also want to fine-tune your investment portfolio based on the tax laws of the new state – such as adjustments or additions to your municipal bond portfolio. Generally, states assume you are a resident if you spend more than six months in that state, and it does not have to be a consecutive stay. This rule provides you with the opportunity to be tax “creative” if you plan on spending near equal amounts of time in multiple states.

Legal Changes

Property Rights: When it comes to property rights for married individuals, there are two types of property: marital property and separate property. Marital property includes everything you earned during your marriage (unless you have agreed otherwise). Separate property belongs to one spouse (usually from before the marriage), personal gifts, inheritance, and other agreed property. Some states follow a common-law system, and others (including California) follow a Community Property system that determines what property is placed in the marital property category. Estate Planning: Estate tax and probate matters vary from state to state, so you will likely need to update your estate plan to reflect your new state's statutes. The most common components of an estate plan include a living trust, health care directive, powers of attorney, and wills. In addition to the legal aspects of the plan, you may consider a change to your power of attorney or successor because of your move. Although we have focused on the research and understanding of the cost, tax, and legal factors associated with a move, we cannot forget about the human element and quality of life. It has never been easier to join social media groups and find websites focused on your personal and family interests – parent groups, foodies, outdoors, sports, youth activities, etc. In addition to online and peer review resources, like Google and Yelp, social communities like Nextdoor make it highly convenient to get advice and recommendations from peers in your community. And most everyone has quickly learned and become comfortable with some form of video communications, a technology that is here to stay long after the pandemic ends. At the end of the day, research and preparation can only take you so far, and it takes the leap to know if it is the right move for you.