Ancillary probate will be necessary in many states if you own real estate located outside of your home state or tangible personal property, such as a car or boat, that is registered outside of your home state. Nonetheless, there are several ways to avoid ancillary probate of your out of state property by either converting it into non probate property, or, at the very least, by converting it from real estate or tangible personal property into an intangible asset, which, in turn, will avoid ancillary probate but not domiciliary probate.
What will work the best for you will depend on many factors, including your family situation and who you want to inherit the real estate or tangible personal property after you die.
What Are the Options for Avoiding Ancillary Probate?
Ancillary probate can easily be avoided by using one of the following options:
- Titling Property in Joint Names With Your Spouse. If you are married, then titling the out of state real estate or tangible personal property 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 most likely need to be probated.
- Titling Property in Joint Names With Others. If you are not married, or if you want someone other than your spouse to inherit your out of state property, then you can title the real estate or tangible personal property in joint names with rights of survivorship with the people who you want to receive the property after you die. (Note: Be sure that the title is with rights of survivorship since many states default to tenancy in common and not joint tenants when it comes to real estate.) There are, however, several downsides to this approach:
- Adding other names to the deed or title 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 could 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 even be forced to sell the property to pay off the creditor.
- You must add the names of all of the people who you want to inherit the property to the deed or title, otherwise you will be disinheriting anyone not specifically named.
- 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 real estate assessments if all of the owners listed on the deed do not actually live at the homestead.
- If the real estate is subject to a mortgage, then you may trigger the "due on sale clause" contained in the mortgage agreement which means that the lender can call for immediate repayment of the loan.
- Using a Life Estate Deed. You can title the real estate in your name and reserve a life estate for your remaining lifetime and then designate who will inherit the property as the remainder beneficiaries after you die. The drawback to life estate deeds in many states is that if you change your mind about who you want to inherit the property or if you decide to mortgage or sell the property, then you will need the permission of the remainder beneficiaries in order to change the final beneficiaries or mortgage or sell the property.
- Using a Transfer on Death (TOD) or Beneficiary Deed. In the following states, probate of real estate can be avoided by executing and recording a TOD or beneficiary deed or affidavit: Arizona, Arkansas, Colorado, Indiana, Kansas, Missouri, Montana, Michigan, Nevada, New Mexico, Ohio, Oklahoma and Wisconsin.
- Titling Property in the Name of a Business Entity. You can title your business real estate or tangible personal property in the name of a business entity such as a corporation or limited liability company, which will in turn convert the real estate or tangible personal property into an intangible asset that will be subject to probate in your home state but not in the state where the property is located. This, of course, will not eliminate probate altogether, just ancillary probate.
- Titling Property in the Name of a Revocable Living Trust. You can title your out of state property into the name of your Revocable Living Trust. That way, the real estate or tangible personal property can either be transferred directly to the beneficiaries you have named in your Revocable Living Trust to receive your assets after you die, or sold by the successor Trustee you have named to manage and distribute the trust property after you die.