Owning real estate in several different states will pose a unique challenge when planning your estate. This is because the laws of the state where the property is physically located will govern what will happen to the property after you die, not the laws of the state where you live at the time of your death. This, in turn, will lead to ancillary probate.
What is Ancillary Probate?
This type of probate refers to a probate proceeding that is required in addition to, or in place of, the primary probate proceeding that will take place in your home state. Typically, ancillary probate will be necessary because you own a piece of real estate that's located outside of your home state, although it could apply to personal property, such as cars, boats, or airplanes, that are registered and titled outside of your home state. Probably the biggest drawback to ancillary probate is the added cost of having more than one probate estate, including multiple court, accounting and attorneys' fees.Ways to Avoid Ancillary Probate
There are several ways to avoid ancillary probate of your out of state property that are dependent upon your family situation and who you want to receive the real estate after you die.- Married Owners- If you're married, then titling the real estate in joint names with your spouse with rights of survivorship or as tenants by the entirety will avoid ancillary probate of the property. If you and your spouse die together in a common accident, however, then the property will need to be probated.
- Unmarried Owners or Nonspouse Beneficiaries - If you're not married, or if you want someone other than your spouse to inherit the out of state property, then you can title the real estate in joint names with rights of survivorship with the people you want to receive the property after you die. (Note: Be sure that the title is with rights of survivorship, since some states default to tenancy in common with real estate.) There are, however, several downsides to this approach:
- Adding other names to the deed for the property could be considered a gift for federal and, if applicable, state gift tax purposes. If this is the case, then the gift will need to be reported to the IRS and the appropriate state taxing authorities.
- If a joint owner of your property is sued, then a judgment lien may be placed against the property. This, in turn, will prohibit you from mortgaging or selling the property without paying off the judgment creditor first, and you may be forced to sell the property to pay off the creditor.
- In some states, owners may lose certain tax or other benefits. For example, in Florida, a homeowner may lose a portion or all of their $50,000 homestead exemption and 3% cap on assessments if all of the owners listed on the deed don't actually live at the homestead property.
- Adding other names to the deed for the property could be considered a gift for federal and, if applicable, state gift tax purposes. If this is the case, then the gift will need to be reported to the IRS and the appropriate state taxing authorities.
- Revocable Living Trusts - Whether you're married or not, you can retitle your out of state property into the name of your revocable living trust. That way, the real estate can either be deeded directly to the beneficiaries whom you've named in your trust to receive your assets after you die, or sold by the successor trustee you've named to manage your trust property after you die.
