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Ancillary Probate: When Is It Used, Where It Occurs, and How to Avoid It
Many people own property in more than one state—perhaps a vacation home in Florida, a rental property in a former home state, or even a car titled in another state. It is important to think about how that property will be handled as you create an estate plan. It may be necessary for there to be an additional probate proceeding called ancillary probate. Through proper estate planning, however, this result can be made less burdensome or even avoided.
What Is Ancillary Probate?
A probate proceeding is the court process that must take place to transfer property you owned at your death to the family members and loved ones you have named in your will (or to heirs designated by state law if you don’t have a will) when you pass away. Probate is not required for property that you have placed in a trust or that automatically belongs to a surviving joint owner upon your death, such as a joint bank account or marital home owned by you and your spouse as joint tenants. In those situations, you no longer own the property or money at your death, so probate is unnecessary.
In situations in which probate is required, more than one probate proceeding may be necessary if you own property in more than one state. Typically, the law of the state where real estate (and sometimes tangible personal property, i.e., property you can physically touch, such as a piece of jewelry or a painting) is located determines what happens to that property when you pass away. Intangible personal property (such as a copyright or trademark, and in some states, a retirement or bank account) can be probated in the state where the property owner was living at death.
The primary (sometimes called domiciliary) probate proceeding takes place in the state where a property owner was living when he or she passed away. An ancillary probate proceeding is typically necessary if the person who died also owned real estate in another state.
In the primary probate proceeding, the court establishes the validity of the will, admits the will into probate, and then appoints the executor named in your will to manage the estate. The executor locates the property, pays any outstanding debts, and then distributes the property according to the instructions left in your will.
Although state law varies, once the will has been found to be legally valid during the primary probate proceeding, probate courts in other states will often allow the executor appointed in the primary probate proceeding to file the necessary probate letters issued in that proceeding, as well as a court-stamped copy of the will, in the probate court in the state where the real estate is located. At that point, the executor can exercise control over the property in the other state, e.g., transferring it to your beneficiaries as specified in your will, in accordance with the procedures mandated by that state’s law.
Note: Ancillary probate will also be necessary if you die without a will while owning real estate in another state (unless you have taken one of the steps discussed below to avoid it). If you do not have a will, state law will determine who will receive the property. Because state law varies, it is possible that the heirs specified in the law of the state in which you are living when you pass away are different from the heirs named in the law of the state in which your out-of-state property is located.
This is a situation that most people try to avoid because it can involve more of the same types of costs associated with probating an estate: court fees, accounting fees, and attorney’s fees. In addition, it means a double dose of all the other disadvantages associated with probate proceedings, e.g., a long waiting period before the property is transferred and the lack of privacy arising from public court hearings and records.
How Can It Be Avoided?
Joint ownership. If you own property jointly with another person, for example, by joint tenancy with right of survivorship, tenancy by the entirety, or community property with a right of survivorship, the property will automatically pass to the joint owner without the need for a probate proceeding. This type of ownership is typically used for real estate, bank accounts, vehicles, and other valuable property. Usually, the surviving owner only needs to fill out forms that can be submitted to the government office that has recorded the deed or title, the bank where a joint account is located, or other similar entity, and probate is unnecessary. Although joint ownership of property avoids the probate proceedings and might seem like a quick and easy way to transfer property, the money or property jointly owned is now subject to the surviving owner’s creditors, divorcing spouse, or bankruptcy.
Transfer-on-death deed. A few states allow you to file a special type of deed that will not become effective until your death (called a transfer-on-death deed or a beneficiary deed) with the local real estate records office. Unlike joint ownership, you retain complete control over the property during your lifetime, and you can even revoke the deed any time before your death. The person(s) named in the deed automatically receives ownership of the real estate only upon your death, and a probate proceeding is avoided. Similarly to joint property, transferring real estate using a transfer-on-death deed provides no protection for the real estate and could make it vulnerable to the new owner’s creditors.
Revocable living trust. If you transfer the title of the property located in the other state into a revocable living trust during your lifetime, you can avoid ancillary probate. This is because the trust, not you, owns the title to the property. Because a trust continues after your death, a probate proceeding is unnecessary. If you want to avoid probate altogether, you can also transfer your accounts and title to property located in your home state to the trust as well. If you name yourself as the trustee, you can retain complete control over the property and can even revoke the trust at any time during your lifetime. It only becomes irrevocable upon your death or if you no longer have the mental capabilities to revoke the trust. While you are alive and unable to act as trustee, your successor trustee will continue to manage and distribute funds for your benefit. Upon your death, the successor trustee will distribute the property to your family members and loved ones when and how you have specified in the trust instrument.
We Can Help Make Things Easier for Your Loved Ones
When you pass away, the last thing your grieving family members and loved ones need is a lengthy, expensive, and complicated process to handle the transfer and disposition of your money and property. If you own property located in another state, the potential hassles they may face could be multiplied if you do not have a well-thought-out estate plan in place. We can help you create an estate plan that will enable you to have the peace of mind that comes with knowing that you have done everything you can to minimize the cost and hassle for your family when you pass away. Call us today to set up a meeting so we can discuss an estate plan designed to make sure all of your property is transferred to your beneficiaries as you wish, regardless of where it is located.