Do You Own Real Estate in Another State?

Purchasing a cold weather retreat is an enticing prospect for many who reside in the frigid northeast corner of Ohio. If you are considering purchasing your slice of paradise in another state, it is important to be cognizant of the impact this will have on your loved ones after you are gone.

Probate Overview
A primary function of the probate court is to oversee the distribution of assets which are in a person’s name at the time of their passing. This often includes bank accounts, vehicles, boats, investments, and real estate. While the administration of a probate estate ultimately results in the distribution of these assets, folks often seek to expedite, simplify, or even eliminate the need for a probate estate altogether. This is more commonly referred to as “estate planning”.

What Happens When I Own Real Property in A Different State?
If you buy or inherit real estate in another state, your probate estate will become much more complicated for your loved ones without proper planning. Ownership of out of state real estate requires not one, but two separate probate estates to distribute your assets. Most of your assets will be distributed by the probate court in the county and state of your residence (your “home state”). An additional estate, however, must be opened for each state in which you own real estate. These additional estates are called “ancillary estates”. This requires your loved ones to file documents in multiple courts, hire multiple attorneys, and pay significant court costs and attorney fees.

What’s the Fix?
Thankfully, with some careful and attentive planning, you can avoid the hassle of ancillary probate estates. The most common method is to establish a revocable living trust. Trusts can be complicated, but the simplest way to think of this kind of trust is to envision it as a bucket. You can put your property in this bucket and carry it around with you. As long as you are alive you may take items in and out of the bucket. For the duration of your life, this trust (or the bucket if you will) has very little impact on the day-to-day management of your finances or property. The magic, however, happens after you have passed away.

Remember, probate court will only distribute assets that are owned by a person at the time of their death. When you create a trust, you take those assets (like real estate) and put them into your bucket (the trust). To the eyes of the probate court, there is nothing to administer because the real estate is owned by your trust, not you. This allows your loved ones to bypass probate administration in the other state.

Example
I think the easiest way to demonstrate this is with an example. Let’s say that I own a home in Avon, Ohio. One day, I walk into a lawyer’s office and create a new revocable living trust. That same day, I go to the recorder’s office and record a deed transferring me from myself to my trust—therefore adding my home to my theoretical “bucket”. Ten years later, I learn that I have just inherited a beautiful beach home on Pebble Beach from my grandmother. After receiving the title, I immediately record another deed which transfers title from myself to my trust. I now have two pieces of property in my trust: my Avon home and my new beach house.

Because I have placed my beach house into the trust, my family will not need to open an ancillary estate in Florida. Similarly, my Avon home will not be part of my Ohio probate estate for the same reason.
To take this example one step further, let’s assume that I transferred every asset I owned (car, personal property, bank accounts, investments, etc.) into my trust. When I pass away, my family will not have to open a probate estate anywhere because at the time of my death I will not own anything in my own name.

Summary
In conclusion, owning real property in another state (especially a warmer one) is a wonderful privilege. That privilege, however, comes with the potential to burden the next generation with a significant headache. The Estate Planning attorneys at our Firm are dedicated to helping clients live their dreams but also to position their financial assets in a way that mitigates those headaches. Please contact us to set up a free consultation to discuss your situation and how we might help you achieve your goals.