Estate Planning Solutions for Out-of-State Real Estate

The estate planning process is more complicated if you own real estate in different states because each state’s probate court only has authority over property located in their own state. Thus, if you are a Washington State resident and own a home here, a Washington State probate court can oversee that property’s transfer to your heirs, but it can’t do anything about your timeshare in Hawaii or your mountain vacation home in Colorado. The properties in those states will have to go through an ancillary probate process in the states where they are located. Your personal representative may have to travel there, and you’ll probably need a lawyer in each state.  

There are several ways to avoid complicated, lengthy, and expensive probates in multiples states.

1.     Ensure the property is owned jointly with your spouse, with a right of survivorship. This will allow the property to pass directly to your spouse without probate and without a specific gift in your will. However, if you are not legally married to the person who co-owns the property, it may still subject you to estate taxes in the other state, and it may affect capital gains taxes for subsequent non-spouse owners.

2.     Set up a revocable living trust and put your real estate in the trust. Your property will pass according to the instructions on the trust, without going through probate. In some states, this can also minimize estate taxes and probate-related expenses. It is particularly effective for transferring property to someone other than your spouse, such as children or grandchildren.

3.     Set up an LLC and put your real estate into the company. While an LLC will not avoid probate in the state where you are domiciled, it removes the property from your estate directly. Instead of owning real estate, you now own a business, and the business can pass pursuant to the instructions in the operating agreement. This can be a great solution for property that is part of a family business, like a farm, or rental properties.

It is important to consult with a knowledgeable estate planning attorney about these options. Your attorney can evaluate the laws in the states where you own property and help you select the right solution for you and your family.

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