Nearly everyone has a retirement dream, and what that retirement life will look like varies from person to person. For some, retirement means spending days on a beach, while others envision hot cocoa in a snowy cabin. For a large number of people, retirement will take place in a foreign land.
Living life as an expat has a variety of challenges, one of which is simply: if you have sold all of your property in the US, then how do you receive mail? Sure, you can have mail sent to a family member’s home, but they may grow tired of receiving and forwarding your mail constantly.
An easier and smarter way to maintain a US mailing address is to establish a domicile (a.k.a. “tax residency”) in an expat-friendly state, such as South Dakota. In other words, you can obtain a South Dakota mailing address and be declared a “citizen” of South Dakota without spending much time in South Dakota.
10 Benefits of Establishing Domicile — Pros
If you are an American expatriate living abroad year-round, there are some benefits to maintaining an official US mailing address. These five benefits apply to any state in which you wish to establish a domicile.
1. US Post Office
During your retirement years, you may, unfortunately, discover that America’s Postal System is far superior to the postal system of the foreign country you live in. By maintaining a domicile in a state, you get to keep a reliable US mailing address serviced by the Post Office.
2. US Bank Accounts
Most US banks only offer accounts to residents of the US. By maintaining a US mailing address, you will be able to keep your accounts open. This will allow you to keep using a bank you know and trust, and not go through the difficulties of opening an account with a foreign bank.
3. US Driver’s License
Keeping a valid driver’s license will allow you to drive whenever you visit the states. Also, many countries accept a US license as valid in their own country. Keeping a US license will help you avoid the hassles of trying to get a foreign license as a non-citizen. This is especially convenient if you travel to multiple countries.
4. US Voting
Citizens abroad are able to vote in the district they are domiciled in. Having a physical US address keeps you on the voter rolls and provides a district for you to vote in, either in person or via absentee ballot.
5. US Passport
Maintaining a US address allows you to easily renew your passport via mail. Without an address, you would have to visit the US Embassy Office in your foreign land
Once you have decided to maintain a physical address via a state domicile, you need to decide which of the 50 states to call your new “home”. And every state has rules on what a person has to do in order to receive a domicile status in their state.
This article will discuss the domicile process of South Dakota, which has one of the easiest domicile processes and has some other benefits to consider.
6. South Dakota has Low State Taxes
You may have to pay state income taxes to whatever state you are domiciled in. If you are going to pick a state for domicile, you might as well choose a state that has a low tax burden.
South Dakota offers its domicile residents:
- No state income tax
- No personal property tax
- No taxes on social security, pensions, and some investments
- No inheritance tax
7. South Dakota has Low-Cost Auto Insurance
If you want to keep a vehicle state-side, then you will need to be covered by insurance. Auto insurance rules are controlled by state insurance commissions, so prices and protection can vary from state to state. South Dakota happens to have one of the lowest cost insurance rates in the country. By establishing a domicile in South Dakota, you can purchase an inexpensive policy that can cover you throughout the country.
8. South Dakota has Easy Car Registration
Another requirement of keeping a vehicle state-side is that it needs to have valid license plates. Thankfully, South Dakota makes vehicle registration easy for those who domicile in the state. You don’t have to be physically present in the state to register the vehicle, there are no inspections and no emissions requirements. You will enjoy the low price of license fees and the 4% tax rate on vehicle purchases,
9. Mail Forwarding Companies Make this Easy
To establish a mailing address in South Dakota, you will most likely purchase the service of a mail forwarding company. Once registered with this company, they will give you a physical mailing address to use. As your mail comes into the mailbox, the company will send you a scanned picture of the envelope. With a click of a button, you can decide what to do with each letter. You can ask the company to open the envelope and show you what is inside, ask them to forward the mail to you at a different address, or just tell them to destroy it.
These mail forwarding companies often offer additional services, such as helping you establish a domicile. They will send you paperwork, submit your paperwork to the required agencies, and provide consulting and concierge services to help you establish a domicile.
10. It is Legal
There is nothing sneaky or exploitive about establishing a domicile in South Dakota. The state wrote laws to allow full-time travelers to establish domicile and they allow the mail-forwarding companies to continue to operate. If you have questions and concerns, contact a mail-forwarding company as they have the most experience.
6 Drawbacks of South Dakota Domicile — Cons
Next, we will look at some of the downsides you should consider prior to establishing a domicile in South Dakota.
11. Your Health Insurance May Change
Not only could your auto insurance policy change (Pro #7), but your health insurance will also likely be impacted by this change in domicile, and likely in a negative way. You may have to give up your existing plan, and you may find South Dakota is short on adequate replacement plans. Poor health insurance options is the primary complaint from South Dakota domiciles.
12. You Must Visit the State
South Dakota law requires individuals to spend at least 24-hours in the state before they can request a domicile. The driver’s license is good for 5 years, meaning you must spend 24-hours in the state every 5 years.
While 24-hours is far from a burdensome requirement, keep in mind that you will need to spend money on plane tickets, hotels, etc. If you find yourself on the other side of the world, it may be a long and expensive trip back to South Dakota.
13. You May Have to Sell Other Property
The law is respectful to individuals that select South Dakota as a domicile unless the states involved believe you are domicile in more than one state at a time. In other words, if you establish South Dakota as your domicile but spend the entire year at your beach house in New Jersey, then you may receive scrutiny from one or both of the states. To be clear, it is certainly possible to be domiciled in one state and have vacation property in another. It can just get tricky.
The safest path to take is to sell all of your property in other states, thus removing any official footprint in that state.
14. Mail Forwarding is not Free
It may be common sense, but you are going to have to pay the mail forwarding company to handle your mail and concierge your domicile paperwork. Common plans cost around $200 per year. However, please note there may be additional fees every time you ask for an envelope to be opened or have mail forwarded to you.
15. Your Vote May Matter Less
When you change your voter registration to South Dakota, then you will be voting as if you are a South Dakota resident. Your vote for federal offices will be getting mixed in with the rest of the state, which votes strongly conservative. For state and local races, you will be voting on South Dakota offices. You probably are not going to have a strong opinion about a Board of Education office in a state you only visit once every 5 years.
16. There are Other Domicile States
Lastly, it is worth noting that other states have favorable domicile laws, especially Texas and Florida. Each of these states carries its own pros and cons when it comes to taxes and registration requirements.
These other states will often have better auto and health insurance options than South Dakota.
Finally, some of these states may be more physically convenient for you to travel to. For example, if you are living in the Caribbean, it would be a much shorter and less expensive trip to travel to the best places to retire in Texas or Florida, versus traveling all the way north to South Dakota.
How Do I Domicile in South Dakota?
The minimum steps required to establish a domicile in South Dakota are:
- Establish a mailing address in the state, most likely through a mail-forwarding company
- Spend at least 24-hours in the state
- Make a visit to the Division of Motor Vehicles and get your license
Optional steps to complete are:
- Register your vehicles in the state
- Switch your auto and health insurance
- Register to vote
How Long Do You Have to Live in South Dakota to Claim Residency?
The state of South Dakota requires you to spend just 24-hours inside state borders in order to establish a domicile.
What are the Tax Benefits of Living in South Dakota?
South Dakota offers its domicile residents:
- No state income tax
- No personal property tax
- No taxes on social security, pensions, and some investments
- No inheritance tax
- A low 4% vehicle tax
Related: Expat Taxes: Tax Considerations When Retiring Abroad
