The estate planning process is more complicated if you own real estate in different states. Without good planning, your heirs may face delays and unexpected tax consequences.
What is estate planning?
The purpose of estate planning is to prepare for the day when you can't handle your affairs anymore. Estate planning ensures that a person's wishes are carried out if:
- They pass away, or
- They become incompetent
Also, estate planning is important because it can minimize taxes, simplify the process of transferring property to your heirs, help you plan for long-term care expenses, and relieve stress for family members who suddenly have to take over during a crisis.
A basic estate plan includes a will, a durable general power of attorney, a healthcare power of attorney, and an advance directive. An estate plan can also include one or more trusts.
If you own property in multiple states, it's usually best to have an estate planning attorney do your documents. An estate planning lawyer is also able to give you advice about the best approach for your situation.
Estate planning and multiple properties
Your state's probate court only has authority over property located in your home state. For example, if you're a New York resident and own a home there, the New York probate court can oversee that property's transfer. But it can't do anything about your condo in Florida or timeshare in Colorado. Those properties will have to go through an ancillary probate process in the states where they're located. Your executor may have to travel there, and you'll probably need a lawyer in each state.
Probate in multiple states can be complicated, time-consuming, and expensive. Two ways to avoid it are:
- Ensure the deed says the property is owned jointly with your spouse, with a right of survivorship. This means the property will pass directly to your spouse, without probate and without a specific gift in your will.
- Set up a revocable living trust and put your real estate in the trust. Your property will then pass according to the instructions in the trust, without going through probate. This can also be an effective way to minimize state estate taxes.
If you only have personal property, such as furniture in another state, your executor can usually move the property to your home state and probate the entire estate there.
Multiple estate planning documents for multiple properties
Technically, you could have a separate will for each of your out-of-state properties. You could have a Florida will that only addressed your condo there and a Colorado will for the timeshare.
The advantage of this is that you'd have a will tailored to each state's laws about community property and appointment of an executor. The disadvantage is that multiple wills can be confusing or conflicting, and you'd still have to go through the probate process in each state where you own property. A trust is usually a better way to handle out-of-state property.
For powers of attorney and advance directives, it can be a good idea to have a set of documents for each state where you spend a significant amount of time. This is because the documents are written according to state law, and the language and formatting can vary from one state to another. Unfamiliar out-of-state documents can confuse healthcare workers and people you do business with, causing stress and delays for everyone.
If you own out-of-state property, a good estate plan is critical. The plans you put in place today can help things go more smoothly for your family in the future.