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South Carolina Estate Tax Abolished

08.10.2009

 
South Carolina has abolished its state estate tax. Regrettably, North Carolina still has a state estate tax. This article will focus on a person changing his domicile from North Carolina to South Carolina although the principles set forth in this article would be applicable to a person changing his domicile to South Carolina from any state. Persons domiciled in South Carolina at their death that do not own any real property or tangible personal property in another state such as North Carolina that has an estate tax will pay no state estate taxes. If a person is domiciled in South Carolina at his death,  but still owns real property or tangible personal property in a state that imposes an estate tax such as North Carolina,  the estate tax will be limited to the state estate tax calculated on the value of the real property and tangible personal property located in the non-domiciliary state. However, as mentioned, the person’s estate will not pay any South Carolina estate tax.

To reap the estate tax benefits of South Carolina, the person must be domiciled in South Carolina at his death. One’s domicile is the place where he has his true, fixed permanent home and principal residence, and to which he has, whenever he is absent, the intention of returning, and from which he has no present intention of moving. Even though one’s intent is very important in determining domicile in South Carolina, it is determined by law rather than the person’s choice. The person must use care to do those things which establishes domicile in South Carolina. Everyone has a domicile, but it may not be the same as his home, his place of abode, his residence (hereinafter discussed), or even his citizenship. One’s domicile may not be abandoned until another domicile is acquired. To change domicile from North Carolina to South Carolina requires four elements: (1) physical abandonment of the North Carolina domicile; (2) an intent not to return to North Carolina; (3) a physical presence in South Carolina and (4) an intent to make South Carolina his domicile. The right to change one’s domicile from North Carolina to South Carolina is a fundamental right under the United States Constitution.

“Residence” has no fixed, exact meaning in the law, but may have a variety of meanings dependent upon the context in connection with which it is employed as well as the subject matter involved and the purposes of such subject matter. Two elements are necessary to create a residence in South Carolina, (1) bodily presence in South Carolina, and (2) the intention of remaining in South Carolina; neither alone is sufficient to create a legal “residence” in South Carolina. When a legal residence is established in South Carolina, a temporary departure therefrom with intention to retain your residence in South Carolina and return to it is not an abandonment or forfeiture of the South Carolina “residence.”  In such cases the courts usually say the controlling element in determining if “residence” has been lost or retained in South Carolina is the person’s intention. The intention, however, must be a bona fide intention to return to South Carolina at some time and make South Carolina a permanent home.

If there is any doubt as to a person’s domicile being in South Carolina, he should take as many steps as possible to lay the groundwork so that his domicile will be South Carolina. These steps include the following:

    1. Be sure that the person’s Last Will and Testament states that his domicile is South Carolina and is prepared by an attorney licensed to practice law in South Carolina.
    2. Spend as much time in South Carolina as possible.
    3. If possible, avoid owning a residence (including a condominium, or cooperative apartment) in a state other than South Carolina. If a residence is owned in another state, sell the residence. If selling it is not feasible, lease it.
    4. If there is a residence in a state other than South Carolina, do not be actively involved in a business in that other state.
    5. If there is a residence in a state other than South Carolina, keep contemporaneous track of every day spent in the other state (saving proof, such as airline tickets) and do not let the total days spent there exceed the minimum amount if any, set by that state (e.g. 183 days) for automatic income taxation as a resident.
    6. Have the post office forward mail to your address in South Carolina.
    7. Keep personal papers, books of account, family documents, paintings and other valuable tangible personal property, etc. at the residence in South Carolina.
    8. Register to vote and do vote in South Carolina and no other place; cancel voter registration in the state of former domicile.
    9. Change all lodge, religious and fraternal memberships to the branches located in South Carolina. If memberships must be maintained in organizations outside of South Carolina, make sure the membership status is non-resident.
    10. Transfer bank and savings accounts, brokerage accounts, and safe deposit boxes to South Carolina. Particularly avoid having accounts in a state other than South Carolina that might be mistaken as the domicile, as applications for estate tax consents will probably have to be made in each state where there are accounts.
    11. Pay personal property taxes in South Carolina, and no other place, if possible. Claim the South Carolina homestead exemption.
    12. Take such steps as may be possible under the circumstances to establish a permanent home in South Carolina. Own the home in South Carolina and rent temporary quarters in other states.
    13. List South Carolina as the residence on the tax returns filed in South Carolina and on federal income tax returns and pay federal taxes in the IRS district/service center for South Carolina. If you are subject to income taxes in states other than South Carolina, file nonresident income tax returns in those states using the South Carolina address.
    14. If the domicile is to be changed to South Carolina, tell as many people as possible of that intention at the time of moving, as such statements are admissible in evidence as an exception to the hearsay rule.
    15. If large amounts may be involved in any dispute over domicile in South Carolina, file a Complaint to Perpetuate Testimony. A Complaint to Perpetuate Testimony preserves the testimony of witnesses concerning the domicile of a person when no suit is pending and the taking of the testimony is made necessary by the danger that it may be lost by delay.
    16. Have any automobile registered in South Carolina and obtain a resident driver’s license from South Carolina.
    17. Show the home address in South Carolina on your passport and all other legal documents.
    18. Change insurance policies to show that you are domiciled in South Carolina.

The following are examples of North Carolina estate tax savings after consideration of the deduction of North Carolina estate tax for purposes of the federal estate tax that will result if a resident of North Carolina changes his domicile to South Carolina, dies in 2009 and has no real property or tangible personal property located in North Carolina at his death. 

TAXABLE ESTATE   

 NC STATE
ESTATE TAX SAVINGS 

 $5,000,000 or less

 $0.00

 $5,500,000 

 $175,000.00 

 $6,000,000

 $350,000.00

 $6,500,000

  $525,000.00

 $7,000,000

 $638,000.00

 $7,500,000

 $705,200.00

 $8,000,000

 $773,200.00

 $8,500,000

 $853,040.00

 $9,000,000

 $916,400.00

 $9,500,000

 $999,600.00

 $10,000,000

 $1,067,600.00
            
In conclusion, the North Carolina estate tax can be avoided by changing your domicile to South Carolina and not owning at your death any real property or tangible personal property located in North Carolina. To the extent that you still have real property or tangible personal property located in North Carolina after changing your domicile to South Carolina, North Carolina estate tax will be assessed but limited to the amount of North Carolina estate tax calculated on the value of such property having a North Carolina situs. As shown above, a change in domicile from North Carolina to South Carolina will save several thousands of dollars in North Carolina estate tax for clients with taxable estates in excess of $5,000,000.

Bill Belcher is licensed to practice law in South Carolina, North Carolina and West Virginia and is able to provide legal services to change your domicile to South Carolina, plan your estate and draw your estate planning documents according to the laws of South Carolina. 
Physical Address: 301 Fayetteville Street, Suite 1900, Raleigh, NC 27601
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