If you own property in more than one state, it’s important to understand how that can affect your estate plan. One issue that often surprises families is the necessity for multi-state probate – an extra legal process that can be time-consuming, expensive and complicated. Fortunately, there are steps you can take to avoid it.
This post will explain why multi-state probate happens – and how proper planning can help your family avoid it.
When is a second probate process required?
Probate is the legal process of settling a deceased person’s estate – by paying the deceased’s final debts, handling any disputes that may arise and distributing the remaining assets to the designated beneficiaries and heirs. It’s the way that ownership of real property, too, is properly transferred.
Probate usually takes place in the state where the deceased legally resided at the time of death. However, if they owned real estate in another state, that property must go through a separate probate process, which is referred to as “ancillary” probate.
For example, if you live in New York but own rental property or a winter home in Florida, which is very common, your estate’s primary probate case would be in New York. However, your Florida property would have to go through probate in a court within that state – even if your will is perfectly clear about your intentions. This is because the rules surrounding the transfer of real property are highly state-specific.
Why is ancillary probate something to avoid?
Going through probate in one state is often stressful enough. Having to go through it in two or more states adds extra expenses, delays and a new layer of complexity for your heirs. Some of the common problems associated with ancillary probate include:
- Multiple court filings and legal fees
- Needing attorneys licensed in different states
- Delays in distributing property
- Differences in state laws that may affect how assets are transferred
- Increased opportunities for disputes or administrative errors
In short, ancillary probate is an avoidable financial and emotional burden on your loved ones that can slow down the transfer of property and drain your estate of resources that could be better used elsewhere.
How can you avoid ancillary probate?
Every situation is a little different – but the best way to avoid ancillary probate and all its troubles is to plan ahead and make use of whatever tools are available that can allow the transfer of real property from one person to another outside the court system. Some common strategies include:
- The primary strategy our attorneys strongly advise is use of a revocable or irrevocable living trust: Placing your real estate—including out-of-state property—into a revocable living trust is one of the most effective ways to avoid probate, including ancillary probate. Property titled in the name of the trust passes directly to your chosen beneficiaries without court involvement. Additionally, an irrevocable trust may be considered for further creditor protection such as Medicaid planning. Trusts are also the best vehicle should a beneficiary need protections themselves due to disability or financial issues; and trusts are optimal for tax planning strategies for your beneficiaries.
- The use of a transfer-on-death (TOD) deed or Lady Bird deed: Depending on where the out-of-state property is located, you may be able to use a TOD or Lady Bird deed to name a beneficiary who will automatically inherit the property. These are, however, very state-specific, so it is not a universal option.
- The use of joint ownership with rights of survivorship: Joint tenancy with the right of survivorship or tenancy by the entirety (for married couples) are two forms of property ownership that allow property to pass automatically to the surviving owner, without passing through probate – but it’s not always an advisable route. This type of ownership can have unfortunate tax consequences and open you to issues with claims by the other party’s creditors.
What’s right for your situation? You may not know until you fully explore the options with an experienced estate planning attorney. Whether your primary residence is in New York or another state, it’s important to spare your loved ones unnecessary legal complications with property transfers whenever you can and take steps to keep more of your assets intact.
