Home Isn’t Always Where You Hang Your Hat : Estate Planning: If you own a second home in another state, make certain which one is your domicile to avoid later confusion.

If you own a second home in another state for vacation or investment purposes, or if you’re thinking about buying one, make certain it’s included in your estate planning, experts say.

When considering multiple-home ownership in your estate plan, it’s important to understand the term domicile. Essentially, domicile is legalese for primary residence. While it is possible to have more than one residence, a person legally can have only one domicile at a time.

If it’s not certain at the time an individual dies where his or her domicile is, the intent of the will could be subverted, the heirs may not receive the property rights intended by the decedent and the tax situation could be greatly complicated.

In fact, courts have held an individual’s estate to be subject to double taxation under the estate laws of two states because each state considered the deceased to be domiciled there.

Consider an individual who has homes in Arizona, a community property state, and Minnesota, a common-law property state. The manner in which property is distributed at death is vastly different under each type of property system. So if the owner dies, and there is confusion as to where his or her domicile is, settlement of the estate can be complicated.

What constitutes a domicile may appear obvious at first. It isn’t.

Traditionally, domicile has been defined as a place where a person establishes his or her permanent residence. But many states have laws that define domicile as a location where a person intends to establish his or her residence for the time being.

In today’s mobile society, it is not unusual for a person to have homes in several states, conduct business in a multi-state area, or move from one state to another because of a change in health, employment, marital status or retirement. Therefore, the definition of domicile becomes blurred.

Although most individuals live most of the year where they are domiciled, the residence does not necessarily determine domicile. Other factors that may be considered:

--How long has the individual lived at the primary residence?

--Where does he or she transact business?

--Where does the individual maintain community or professional affiliations?

--What is the individual’s motive for living in a particular state? (Evasion of creditors, for example, may negate an individual’s claim to domicility.)

If you own a vacation home or investment property in a state outside your home state, I suggest you consult an attorney, then consider the following if domicile is unclear:

--If you own residence in more than one state, transfer or sell any unnecessary real estate holdings not located in the same state as your domicile.

--Transfer all tangible personal property (including household furnishings and cars) to the state in which you want to establish domicile.

--Transfer savings, checking accounts, CDs and, if possible, IRAs and other retirement accounts to the domicile state.

--Obtain insurance coverage in the domicile state on personal property, cars and houses. Do not continue insurance coverage through an agent in the state of non-residence.

--If the state you want regarded as your domicile state has a legal form declaring domicility, file one.

--If you do not have a will, execute one in the state in which you want to establish your domicile. Or, if you have a will that does not reflect your current domicile, have a new one executed, including a clause revoking all prior wills in other states.

--Register to vote in the domicile state and vote at the earliest opportunity, thereby reinforcing your intent to establish residency.

I do not discourage owning homes in more than one state, but it is important to clarify which state is the domicile, because if there is any question about it, the vacation home that produces so much pleasure now may later cause tremendous inconvenience to you and expense to your heirs.

Lochray is an attorney and expert in estate planning for the Denver-based College for Financial Planning.