Financial Planning Challenges for Double-State Dwellers

Are you a double-state dweller? In other words, do you live up north in the summer and head south with the “snowbirds” each winter? Do you have an out-of-state vacation home where you stay each summer? If you own property in two different states, you could face some complicated financial issues. Fortunately, a skilled financial advisor can help you resolve these problems with some careful planning.

If you call two different states your home, here are a few potential challenges you could encounter:

Permanent residency confusion

If you own a vacation home in another state, you probably consider one state your “home,” and the other state just a place you like to visit. However, the governments of those two states may look at it differently. Depending on whether or not these states deem you a resident, you could pay a hefty price.

For example, let’s say you live in Michigan, but you head south to Florida to live in your vacation house for a couple of months each winter. First of all, because you own property in more than one state, your estate could be subject to probate in both Florida and Connecticut. Additionally, there could be severe income tax issues. While Michigan has relatively high income tax, Florida has no state income tax at all.

First and foremost, you need to determine whether you are considered a resident of both states. Generally, if you spend more than 183 days in a state, that state is more likely to see you as a permanent resident. However, this is just a simple rule of thumb. When it comes to financial planning, things can get much more complicated.

If you want to more strongly establish your permanent residency, you should register to vote there, keep your driver’s license and car registration in your main state and set up your financial accounts with banks and brokerages in your home state. You should also hold onto any financial records that document your residency and keep receipts that show where you are living during a certain time of year.

Probate problems

If you own property in more than one state, your estate could be subject to probate in both states. This means your heirs could be heavily taxed after you die, and they may not receive as big of an inheritance as you had hoped.

To help resolve probate issues, many financial experts say you should place any property you own in a second “nonresident” state, such as a vacation home or condo, into a revocable trust. This ensures the property will be passed onto your beneficiaries free of probate.

Health insurance complications

People who own property in two states should also take a close look at their health insurance coverage. Generally, health care plans cover only a specific geographic area. Therefore, if you split your time between Maine and North Carolina, you may need to purchase two health care policies to make sure you are covered in both states.

Alternatively, you could switch to a different type of health care policy. For example, if you have an HMO (health maintenance organization), your insurance likely won't cover medical costs if you visit a doctor outside of your network. However, if you switch to a PPO (preferred provider organization), your health insurance will cover at least a portion of the costs if you go out-of-network.

Homeowner's insurance issues

You should also review your homeowner's insurance coverage if you spend considerable time in another state. Your coverage may change if you leave your home unoccupied for a long amount of time. Additionally, if you’re renting a home or condo in another state, you will need to purchase renter’s insurance to protect your personal items inside the home.

If you split your time between two states, you could face these financial issues and many others. You may want to meet with a financial professional who can help you plan carefully and overcome these types of challenges.