Attorney
The advantages of remote work and increased wealth have offered many Californians the opportunity to maintain multiple residences across different states.
While this may seem like an enviable luxury, it carries with it the complications of distinguishing between one’s residences and one’s domicile. Why is this important? And what does domicile mean in California?
Many individuals attempt to escape high California taxation by establishing permanent residency in a different, low-tax state. Unfortunately, as California estate planning attorneys advise, taxation follows one’s permanent residence, or one’s domicile, and is governed by a complex set of guidelines.
Understanding the difference between residence and domicile is critical when growing and protecting your wealth and preserving your estate for your heirs.
What is the Difference Between Residence and Domicile?
When considering taxation and estate planning, it’s essential to understand how California defines residence vs. domicile. For California tax purposes, a clear distinction is made between a place of abode and a true, fixed permanent home.
According to the California Revenue and Tax Code, a residence is a place of some permanency, while a domicile is a true, fixed permanent home to which an individual intends to return after an absence. Individuals may own more than one residence but may only be domiciled in one state at any time. A new domicile may not be established until the former domicile is relinquished.
What Are the Defining Characteristics of a Domicile in California?
The Franchise Tax Board (FTB) presents a strict set of guidelines for determining resident status and defining one’s domicile in California.
While factual verification of domicile is extensive, here are the basic concepts outlined by the FTB regarding a domicile for California tax purposes:
- A domicile is a place where you voluntarily establish yourself and your family.
- There is the intention of making your California residence a valid, fixed, permanent home and principal establishment.
- Your California residence is the palace you intend to return to whenever you are absent.
- The California home is maintained as a marital residence.
To establish a change of domicile from California, the FTB demands that an individual’s new residence be set up with the full intent to remain permanently in that location, abandoning the former domicile and physically moving and residing in the new locality.
Proving a Domicile Outside of California
If you have moved from California but still own a residence in the state, you must be able to satisfy two tests to establish a domicile change.
The Identifiable Purpose Test: This test identifies an individual’s purpose for being in California and considers the individual’s length of stay in and out of California.
Close Connections Test: This test focuses on a person’s connections to their new place of residence. Items brought under examination include but are not limited to:
- Where a person’s spouse and children reside
- Where a person’s children attend school
- Where a person’s real property is located
- Where a person’s federal and state tax returns are filed
- Where a person’s banking and government affairs are conducted
- Where a person registers their vehicle
- Where a person maintains a driver’s license
California closely analyzes these factors in conjunction with other more invasive criteria, such as where gym and club memberships are held, w