Estate planning is a critical process that helps individuals manage their assets and ensure their wishes are honored after they pass away. One area of estate planning that can be particularly complex involves handling out-of-state property.
When a California resident owns real estate in another state and passes away without properly addressing this property in their estate plan, their heirs might face a legal process known as ancillary probate. Below, we’ll explain ancillary probate and guides California residents on how to avoid it by properly incorporating out-of-state property into their estate plans.
What Is Ancillary Probate?
Ancillary probate is a secondary probate process that is required when a deceased person owned real estate or tangible personal property located in a state different from their state of residence at the time of their death. This process is necessary in addition to the primary probate proceeding, which typically takes place in the decedent’s domicile state—the state where they lived and intended to remain.
The need for this process arises because real estate law is governed by the state where the property is located. Therefore, to legally transfer ownership of non-local property upon the owner’s death, the estate must undergo probate proceedings in that state. This means the estate must be administered according to the specific laws and requirements of the state where the asset is situated, which can vary significantly from the laws in the decedent’s home state.
The Challenge for California Residents
For California residents, owning property in another state—whether it’s a vacation home, investment property, or any other type of real estate—can complicate their estate planning. It involves additional legal fees, court costs, and potentially complex logistical arrangements, especially if the heirs live far from the asset’s location. California’s administration process is already known for being lengthy and expensive, and adding the burden of ancillary probate in another state can exacerbate these issues for the estate and its beneficiaries.
Strategies to Avoid Ancillary Probate
Fortunately, there are several strategies that California residents can employ to avoid ancillary probate for their out-of-state property. These strategies not only simplify the estate administration process but also help ensure a smoother and more efficient transfer of assets to the intended beneficiaries.
1. Revocable Living Trusts
One of the most effective ways to protect real estate is by placing non-local property into a revocable living trust. A trust allows the asset to be transferred directly to the beneficiaries upon the trustor’s death without going through probate in any state. This approach not only avoids the process but also offers greater control over the distribution of assets and can provide privacy for the estate’s affairs.
2. Transfer on Death Deeds
Some states allow for the use of transfer on death (TOD) deeds for real estate. A TOD deed enables the property owner to designate a beneficiary who will receive the property upon the owner’s death, bypassing the probate process. However, California residents should consult with an attorney to determine whether TOD deeds are recognized and can be effectively used in the state where the out-of-state asset is located.
3. Joint Ownership with Right of Survivorship
Holding property jointly with the right of survivorship is another method to avoid ancillary probate. Upon the death of one owner, the property automatically passes to the surviving owner without the need for court review. Spouses commonly use this method but can also be employed with other family members or trusted individuals. It’s important to understand the implications of adding someone as a joint owner, as it involves giving them current ownership interests in the property.
4. Gifting During Lifetime
Transferring ownership of the out-of-state property during the owner’s lifetime is a more drastic measure but can effectively eliminate the need for additional review. This strategy involves gifting the asset to the intended beneficiary or selling it to them at a nominal value. While this approach avoids probate, it may have tax implications and should be considered carefully.
Protect Out-of-State Property From Probate With The Dayton Law Firm P.C.
For California residents with assets in other states, addressing the potential for ancillary probate is a crucial aspect of estate planning. By employing strategies such as creating a revocable living trust, utilizing TOD deeds where applicable, establishing joint ownership with the right of survivorship, or considering lifetime gifts, individuals can ensure a more efficient transfer of their assets and reduce the burden on their heirs. Consulting with an estate planning attorney at The Dayton Law Firm P.C. can help you navigate these options effectively and tailor an estate plan that meets individual needs and goals. Schedule your consultation today to learn how we can assist you in protecting your estate from probate.