Since COVID, we’ve seen more and more people become transient, moving from one jurisdiction to another for various reasons. These might include political issues, practical reasons, personal reasons, cost of living, or taxation issues. We’ve seen the entire spectrum of reasons driving people from one jurisdiction to another, whether it’s domestically—from one state to another—or abroad, from one country to another. There are a lot of different channels on YouTube right now that I like, and I think they give really good practical information on what to do when moving from one country to another.
So, today, we’re going to talk about what happens if you can’t move from one country to another. Let’s get into it.
I think all of us love the idea—especially if you’re here in the United States, where I’m located (I’m in Houston, Texas)—of just packing up one day and moving to another country. There are a few countries that are really popular now, like Colombia, the UAE, and Portugal, among others. People are looking to move to these different jurisdictions for various reasons: cost of living, quality of life, tax issues, the ability to have citizenship elsewhere, and so on. We’ve seen a lot of different factors driving people to go elsewhere.
But there’s this question, particularly as we see more and more content created on YouTube and elsewhere about how to uproot your life and go somewhere else, get a legitimate passport, and obtain citizenship or residency in other countries: what happens if you can’t do that? Maybe you can’t move to another country. Maybe you can’t uproot your entire life and live a digital nomad lifestyle. But maybe you could move from, let’s say, California to Texas or New York to Florida. We’ve seen a lot of that happen—maybe even New York to Tennessee.
But what if you can’t move across the country, or you can’t even move across state lines because of family reasons, practical reasons, or maybe your professional life just doesn’t allow you to do this? There are some solutions to help you take advantage of the best laws that might be available to you.
I’m an estates and trust attorney, so we’re going to focus on how trust planning can help you take advantage of this idea of moving jurisdictions for better laws, better privacy, and better tax consequences. There are some states—I think seven to nine, though I can’t remember the exact number—that don’t have a state income tax. I live in one of those states, Texas. Florida is another heavily populated jurisdiction that doesn’t have a state income tax, as well as Texas, Wyoming, South Dakota, and Tennessee. Tennessee is becoming more and more popular as a jurisdiction or location that doesn’t have a state income tax.
But what happens if you just can’t pack up your entire life and move? Depending on your situation, you could set up a trust in a jurisdiction that doesn’t have a state income tax. However, you have to look at tax laws and trust laws in both jurisdictions—maybe even multiple jurisdictions. You need to consider where the trust is domiciled (which will be in the trust agreement), where the trustee is located, where the beneficiaries are located, and even where the assets are located. All these factors determine what ties you to a particular taxing jurisdiction. That’s the first step in this process.
What can happen for many clients is they can either move their closely held business interests or brokerage account to a trust domiciled in a state with no state income tax to avoid income tax or capital gains tax. Maybe you’re trading on that brokerage account, or maybe you’re selling that closely held business interest and going through a liquidity event. You can minimize your state income taxes or capital gains tax significantly just by moving your assets to a trust in one of these trust-friendly jurisdictions that don’t have a state income tax.
We see a lot of this planning in South Dakota, Nevada, and Delaware, although less and less in Delaware because South Dakota and Nevada have the best trust laws available. These trusts are often referred to as “Incomplete Gift Non-Grantor Trusts” (INGs). Not a lot of attorneys specialize in this kind of planning, but essentially, these are a type of domestic asset protection trust. You have to set it up the right way, ensuring it’s a non-grantor trust as opposed to a grantor trust. I won’t get into that here, but at the end of the day, it’s as simple as moving your assets to a trust in a jurisdiction without a state income tax, like South Dakota, which has really flexible laws. These laws ensure that even after you set up an irrevocable trust for tax planning purposes, you’re not locked into something that doesn’t work for you long term.
So, rather than having to move across the world to have asset protection or to be tax efficient, or even uproot your entire life and move 1,000, 2,000, or 3,000 miles away to another state, you can accomplish a lot of tax strategies by simply setting up a trust in the right jurisdiction.