By Kitty J. Lin, Esq.
You may be one of those lucky people that are fortunate enough to own more than one piece of property real property. What are the estate planning issues for estate planning attorneys to consider when you owe property in different states? The biggest headache people have is that owning properties in more than one state means they are dealing with more than one state’s laws. It may be a surprise for you to know that each state may have very different rules and regulations when it comes to property rights. What may be legal in one state may not be legal in another (for an example, just look at each state’s laws regarding marijuana use/sale or same sex marriage).
If you own more than one piece of real property in more than one state and have a will, or die without a will, an issue that will arise upon your passing is that a separate petition for probate, or the equivalent in that state, will need to be filed in probate court in each state you own property. That means significantly more money is spent on court fees, estate planning attorneys’ fees and your beneficiaries will receive reduced distributions. If you transfer all your properties into a revocable living trust, this will avoid the issue of going through probate altogether in the state you live in and the other states you own property. A trust that is set up by estate planning attorneys in one state is recognized in all states. This does not mean it solves all your problems though. Here are some additional considerations you will need to consider:
Foreign Estate and Inheritance Taxes
Similar to income tax, where there is a federal income tax and a state income tax, the same applies to estate and inheritance taxes as well. The good news is California currently does not have a state estate tax. This does not mean that other states do not have state or inheritance taxes however. You will need to speak with estate planning attorneys in each state regarding tax rules or inheritance taxes. Additionally, if you own property in more than one state, each state may calculate the estate or inheritance taxes differently. It is a good idea to include a clause in the trust regarding what funds will be used to pay the different taxes and who is responsible for paying those taxes. If the clause is not included the state statutes may look at the property for payment of the taxes.
Out of State Trustees
Another consideration for estate planning attorneys when you have out of state property is the trustee who will be named to manage and be in charge of the trust assets. If you have a trustee who lives in California there will be additional headaches for the trustee to manage your property in New York or Florida (or any other state). There will be significantly more expenses if the trustee has to travel to the other states to manage your properties or if the trustee has to hire additional people to manage the properties. One way to lessen these headaches is to have more than one trustee and have the trustees share the responsibilities. Another is to name a professional or corporation as a trustee who will have the resources to manage your trust assets.
Real Property Transfer Rules and Regulations
As indicated previously, each state has different rules and regulations. Even when you are recording a deed, states have different requirements on formatting of the deeds, how the deeds are recorded, whether there are any document transfer fees or taxes, whether there will be any reassessments due and the different ways in which to hold title to property. This is not an exhaustive list; there are many different laws in each state. One example is that in another state you may be able to hold title to your property under tenancies by the entirety. This is not available in California. Additionally, another consideration is that your estate planning attorney in California may not draft a deed for your property in a different state if they are not licensed to practice law in that state. Again, if you own real property you need to plan ahead, especially if you have property in a state other than the state you live in. All the above considerations should be taken into account when you are speaking with estate planning attorneys if you are fortunate enough to own multiple properties in different states.