DOMICILE CHOICE BY THE MADOFF INVESTOR WITH HOMES IN NEW YORK AND FLORIDA—ITS POSSIBLE IMPACT ON ATTEMPTS TO CLAW BACK CASH RECEIVED

I am Allan Lipman. I am licensed to practice law both in New York and Florida and have designed this seminar specifically for the Madoff investor who has received cash payments and has a home in both New York and Florida. I have titled this seminar “Domicile Choice by the Madoff Investor With Homes in New York and Florida—Its Possible Impact on Attempts to Claw Back Cash Received.” For technical, audio and visual reasons and for your convenience, my presentation has arbitrarily been divided into four parts. The presentation is approximately 30 minutes in length and should be listened to and viewed in its entirety. None of my remarks are intended as legal advice. My purpose is simply to alert you and your professional advisor that your choice of domicile may have some impact on attempts by the Bankruptcy Trustee and possibly others to claw back some of the cash payments you have received. Let me explain why I created this website.

I am a native of Buffalo, New York. After graduating Harvard Law School, I returned to Buffalo to practice law. By 1977, I had prepared estate plans for many clients in Western New York, but some clients were purchasing homes in Florida where they stayed during the winter months. Some clients changed their domicile to Florida and by doing so, they avoided New York taxes and were able to take advantage of the Florida homestead laws. They often retained a Florida attorney to prepare a Florida Will and other Florida estate plan documents that superseded what I had prepared for them. In order to retain and continue to serve these clients, I decided during the record setting Buffalo Blizzard of 1977 to become a Florida attorney as well as a New York attorney and took the Florida Bar exam. Since then, although I have retained my New York domicile, my wife and I have spent time in Florida each winter. A significant portion of my practice is counseling New York/Florida snowbirds on how to effectively change their domicile and defending any attacks on their domicile change by New York State domicile auditors. Over the years I have participated in many seminars and written articles addressing snowbird domicile issues and in 1995 published a book on that subject entitled “How Smart Snowbirds Save New York Taxes—A Tax and Estate Planning Guide for the Dual Florida/New York Homeowner.” I updated the hard copy from time to time. That became somewhat onerous and I decided to publish the entire book on a complimentary basis at this website. The website you are now viewing not only contains the complete updated text but also replaced some of the endnotes that cited relevant citations with the entire text of statutes and legal opinions. On several occasions, I have been retained by clients who wanted me to advise them whether they had effectively changed their domicile to Florida before consummating a transaction that would result in a substantial gain. They wanted to avoid—not evade—the New York capital gains tax. In some instances I found that there were additional steps that they should take to provide evidence to show their subjective intent to become Floridians if the domicile issue was later contested. On other occasions, I have been retained by clients who had homes both in New York and Florida but had remained New Yorkers and wanted to become Floridians before the capital gain transaction was consummated. What does all of this have to do with you and Madoff’s Ponzi scheme?

If you were a Madoff investor and never received any money back, this seminar is probably of limited interest to you. But if you are presently are a Madoff investor or were ever a Madoff investor and received any funds back, what I have to say should be of some importance. Most of you are probably already aware that the Madoff Bankruptcy Trustee may attempt to claw back some of the payments received by some investors so that the funds recovered can be placed in the "pot" and divided up in some fashion at some later date for the benefit of all investors who lost money—less, of course, trustee and legal fees and other expenses. Madoff is reported to have confessed that his company accepted approximately $50 Billion from you and other investors. The Bankruptcy Trustee has recently reported that there was less than $1 Billion left when he took over. Where did the other $49 Billion go? A few billion may have gone to Madoff and so called “feeders” and others as commissions and other types of fees. Although it is only a guess, my hunch is that it will turn out that since the Ponzi scheme began that over $45 Billion went back to Madoff investors like yourself. Some of this may have been in the form of annual cash payments that purportedly were profits from dividends, interest and capital gains on the fictitious investment portfolios that were managed by the Madoff company. Returns of 10% to 12% were reportedly not unusual. Others may have withdrawn cash to pay income taxes, estate taxes, make charitable contributions, purchase homes, yachts, works of art or make gifts to family members. Others may have simply closed out their accounts and placed the cash received elsewhere. A few may have suspected that the return on their investments was too good to be true but most, like you had no reason to think anything was amiss. The Bankruptcy Trustee may attempt to claw back some of the cash amounts received by Madoff investors at least to the extent they exceeded the amount invested. It is not clear whether he will target all or only some of the investors. The Bankruptcy Trustee has already disclosed the mailing addresses of some 13,000 present, former and potential Madoff investors who were apparently on the mailing list of the Madoff company. If and when more information becomes publicly available that discloses the cash funds paid out to you and other investors, the race will likely begin by lawyers for investors who received nothing back to commence class actions. Ws With a potential $45 Billion or so out there—you can be sure that there will be an attempt to take back and spread out not only the amounts received in excess of the original investment but all of the cash received back. This may even include cash received that was subsequently reinvested with Madoff by the investor or his or her spouse, other members of the family or their trusts and family limited partnerships. One theory may be that Madoff was acting as an agent for multiple principals and all funds were held in a fiduciary capacity in a common type of trust fund to be shared by all of the investors under some equitable contribution formula. Other imaginative causes of action are also likely to surface. Some theories may be successful—some may not. Some may be foreclosed by the relevant statute of limitations.or preempted by the bankruptcy laws. If and when you are named in one or more of these lawsuits, will you be in a better position if you are domiciled in New York or you are domiciled in Florida or will it make no difference?

I will repeat this question because it is really the focus of my presentation. If and when you are named in one or more of these lawsuits, will you be in a better position if you are domiciled in New York or you are domiciled in Florida or will it make no difference? The answer will depend on your particular facts and circumstances. But let us assume for purposes of this discussion that the Bankruptcy Trustee and other plaintiffs in these lawsuits will find it more difficult to recoup funds from you if you are domiciled in Florida rather than New York. This assumption in part is based on the very liberal creditor and debtor laws in Florida that protect the Florida homestead in many instances against the claims of creditors and is based in part on the four year statute of limitations in Florida that may apply in some instances rather than New York’s six year statute of limitations/

I suggest that you each check with your own professional advisor whether in your particular situation there would be any advantage in having a Florida domicile rather than a New York domicile.

If you are advised that you would be better off if you are domiciled in Florida, how do you know if you have already effectively changed your domicile to Florida? You cannot rely on the fact that you have never had a domicile tax audit by New York State. Even if you have been audited, you cannot rely on the fact that your domicile change.was approved. You cannot rely on the fact that the Florida Tax Assessor has granted you a homestead exemption for many years or that you have been allowed to vote in Florida. The plaintiff who commences a lawsuit, including the Bankruptcy Trustee, may not be bound by any of these facts.

The concept of domicile is very subjective and elusive, but nevertheless important. For example, the laws relating to marriage, divorce, inheritance, adoption and guardianship are generally governed by the state in which you are domiciled. Your spouse may have different marital rights depending on whether you are domiciled in New York or Florida. If your estate plan has an in terrorem clause, that can result in a forfeiture to a child who objects to any provisions, the in terrorem clause may be valid in New York but not in Florida.

Likewise, except where pre-empted by federal bankruptcy laws, some laws relating to creditor/debtor rights may differ depending on whether you are domiciled in Florida or New York.

Let’s discuss what is meant by domicile. The concept of domicile has been around for a long time and its definition has not changed very much. Domicile was defined by Roman law to mean "in whatsoever place an individual has set up his household goods and made the chief seat of his affairs and interests, from which, without some special avocation, he has no intention of departing; from which when he has the departed, he is considered to be away from home, and to which when he has returned, he is considered to have returned home."

The concept of domicile has not changed much since the Roman days. Domicile is characterized in the New York Tax Regulations as the place which an individual intends to be his permanent home and the place to which he intends to return whenever he may be absent and points out that once established, a domicile continues until the person moves to a new location with a bona fide intention of making his fixed and permanent home there.

The leading case in New York State was decided by the New York Court of Appeals in 1908. It remains "good law" and is often cited in tax and other types of cases although it has nothing to do with taxation. It involved a Mrs. Newcomb. During a period of 30 years and until she was about 80 years of age, her domicile was in New York City. She resided part of the year in New Orleans and part of the year in New York City. She wanted to make substantial bequests to Tulane University and was concerned that her Will might be contested by her relatives. She consulted with a Louisiana attorney who advised her to change her domicile and sign a Declaration stating that New Orleans was her permanent home and her place of domicile. The Louisiana domicile was challenged. It was argued that Mrs. Newcomb resided in New York City and merely visited New Orleans and that her later visits to New Orleans differed in no material respects from those made earlier. It was also argued that she sought to become a nominal resident of Louisiana merely for the purpose of making a Louisiana Will and not for the purpose of making a permanent home. The Court of Appeals in the Newcomb case rejected that approach and held that a retiree who maintains two homes can pick and choose his or her permanent residence and his or her motivation for doing so should not be relevant. The Court laid out various rules for determining domicile where a retiree maintains two residences:

1. There must be a present, definite and honest purpose to give up the old and take up the new place as a domicile.
2. Every retiree may select and make his own domicile, but the selection must be followed by proper action. Motives are immaterial except as they indicate intention.
3. A change of domicile may be made through caprice, whim or fancy, for business, health or pleasure, to secure a change of climate or change of laws, or for any reason whatsoever, provided there is an absolute and fixed intention to abandon one and acquire another and the acts of the persons affected confirm the intention.
4. A retiree may elect between his or her winter and summer residence and make a domicile of either, provided he acts in good faith.
5. The right to choose implies the right to declare one’s choice formally or informally as he or she prefers and even for the sole purpose of making evidence to prove what his or her choice was.
6. No pretense or deception can be practiced, for the intention must be honest, the action genuine, and the evidence to establish both, clear and convincing. The burden of proof rests upon the party who alleges a change of domicile.

If your rights are governed by Florida law, some of the rules for defining domicile may differ. In some instances, where a Florida or New York statute refers to a person’s residence or permanent residence, it may be construed as being equivalent to domicile but sometimes not.

Now that you may be totally confused, let me be more specific and discuss some of the objective evidence that a court may take into account in determining whether you are domiciled in New York or Florida.

For those of you who think you have changed your domicile to Florida, I suggest you review my domicile checklist. Have you done many or all of the following?

Many of the items will carry little weight if you stay in New York eight months or more and Florida only four months or less each year or you have a large expensive home in New York and a smaller condo in Florida. On the other hand, it is not a prerequisite to being a Florida domiciliary that you are not present in New York for more than 183 days a year. That is a New York income tax requirement that is separate and apart from the issue as to whether or not you are domiciled in New York or Florida.

Conversely, the fact that you have not checked off some of the items may not be important if you stay in Florida eight months and New York only four months each year or you have a large expensive home in Florida and a small condo in New York.

With the stock market crash that we have recently experienced, the decline in the market value of your homes and your Madoff losses, some of you may now be considering certain important lifestyle changes. How will these changes impact on your choice of domicile

1. Can you now afford to maintain two homes? Should you sell one or both or at least downsize one of them?
2. Should you spend more or less time in Florida? Should you cancel your summer vacation abroad and stay in New York those extra days or go elsewhere?
3. Should you sell any items that are "near and dear" to you such as works of art, coin collections or one or both yachts that you have kept on a permanent basis in either Florida or New York? One of the four primary factors that a New York tax domicile auditor is required to take into account is where you keep items that are "near and dear" to you. A Florida or New York Court addressing the Madoff fraud may or may not consider that a major factor in deciding whether you have not effectively changed your domicile to Florida.
4. If you are considering dropping out or changing your status in one of more country clubs or other organizations, which should you favor?
5. If you are considering doing consulting or other work in New York or Florida, will it affect your domicile status?

For those of you who have previously considered but never taken steps to formally change your domicile from New York to Florida, you might wish to consider doing so at this time. If you are going to change your domicile, I suggest you do it sooner than later. You may wish to change your domicile to Florida even though you are present in a calendar year for more than 183 days in New York and still have to file a New York resident income tax return. As I mentioned earlier, there are no specific number of days that you have to be present in Florida to become a Florida domiciliary. The more, of course, the better if a domicile change is ever challenged.

For those of you who are considering changing your domicile to Florida, I suggest you review all sessions of my website to decide whether or not you are eligible to do so. The change may not only be of some advantage to you if you become enmeshed in Madoff litigation but result in some savings in New York income and estate taxes. But beware of the possibility that a change of domicile specifically to acquire Florida homestead creditor protection may not be viewed favorably by the courts.

It is ironic that after discovering your investment with Madoff is almost worthless that you have to be concerned with the possibility that you may have to pay back some of the cash that you received from his company, some or all of which you may have already spent. It would not be so bad if all of the cash taken out by all investors was paid back and you could share in the "pot," but that will never happen.

Some of you have more to worry about than others. If you have received back less than your investment, you are not as vulnerable as those of you who have received back more than you have invested. If you are a smaller Madoff investor or received a small amount back, you may fall under the radar screen.

There may be various successful defenses that you can raise if any proceeding is commenced against you to claw back funds.

As I stated at the outset, the fact that you are domiciled in either Florida or New York may not have any impact on attempts to claw back cash received by you. But it is a possible factor and one that you should review with your professional advisor before making any change.

During my presentation, I have referred to Madoff’s Ponzi scheme. Although there is an alleged confession, as of this moment there has been no indictment and Madoff should be considered innocent until proven guilty.

I will be pleased to discuss your particular situation on a professional confidential basis. If you would like to contact me, I suggest you either email me at arl@lbfirm.com
or contact my office at (716) 204-1150 to arrange for a consultation in either Florida or New York.

For biographical information concerning my qualifications, click on Biographical Information at this website. If you would like any additional biographical information, please contact me and I will furnish it to you at no cost or obligation.

For additional contact information, please click on Contact Information at this website.

For a session list of related domicile issues that may be of importance to you, please click on Session List at this website.

To return to the home page, please click on Home at this website.

I hope you found this seminar helpful. There have been Ponzi type schemes in the past—but none like this one. We are all in unchartered waters.

Good luck!

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Allan R. Lipman, a member of the NY and FL Bar.

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