Estate planning is never a one-size-fits-all concept and as such, considerations should be made regarding the peculiarities of the estate in question. Owning an estate plan is expedient for everyone but its relevance becomes even more accentuated when estates are owned by one individual in multiple states. Probating an estate is difficult enough even in just one state, then imagine how stressful it would be when this is done across several states. The surviving family of the decedent would be dragged around from one court in one state to the other, a lot of cost and estate taxes would be incurred as most states impose taxes on property owned within them. Imagine owning estate in New York, Pennsylvania, California, etc, of which estate taxes would be charged by each of these states. Calculate the total estate taxes that would be required to be paid from your estate account, and imagining how much deficit that would amount to. If you own property in multiple state, then your estate plan should be such that these difficulties are significantly alleviated and to do this, it is important you seek the profound services of an estate planning attorney. Estate planning lawyers can help draw an estate plan that would help your heirs avoid probate, cut down on taxes, and address whatsoever issues that may arise after your death in order to protect your assets and make life easier for your heirs.
That being said, there are things you ought to know about estate planning for property in multiple states:
State estate taxes
Federal estate taxes are always imposed on properties regardless of what state in which they are owned or located, but that state may as well impose its own estate taxes on the same property. In some states, state estate taxes are not imposed and this is the effect of this in estate planning when you own property in multiple states: assuming you are domiciled in Florida (which does not impose estate taxes), and you also own property in, say, New York, you may think that no estate taxes would be implied since you are domiciled in a state where estate taxes are exclusive, but this is not so. You would be subject to New York estate taxes so long you own assets there, regardless of where you are domiciled.
For every estate, the court has to grant the personal representative of the deceased — known as the estate administrator or executor — the authority to carry out the dictates of the decedent’s will and pay estate debts. Probate becomes unavoidable when there is a will or no estate planning document in place to specify how these estate assets will be distributed. During probate, the surviving family and all interested parties would come face to face in court, and a lot of issues may arise to complicate this process, such as dissatisfied parties contesting the legitimacy of the will. When properties are owned in multiple states, then all these difficulties are heightened as the executor and family members would have to face probate in each state where property is owned.
- Trusts – To completely avoid the problems associated with probate, consider creating a revocable living trust and transferring all assets owned in multiple states into the trust. By so doing, probate will be completely eliminated and these assets would directly pass on to the beneficiaries regardless of where these assets are owned.
- Joint property – Another way of avoiding probate is by having joint ownership to a property. Say you have a property in another state which you want to pass down to your spouse or other beneficiary at your death, probate must take place if you put this instruction down in a will. But when you own that property jointly with such preferred beneficiary, then that property will definitely become theirs by your death.
Estate tax savings
A revocable trust would help you avoid probate while still owning property and also help you take advantage of your federal and state estate tax exemptions. But as revocable trusts assets are still considered yours since the trust can be revoked, estate taxes are not fully cut off.
To further achieve greater estate tax savings, it becomes necessary to include other options in your estate plan such as irrevocable trusts, partnership, or corporate entities. An irrevocable trust completely erases your name off the asset and hence, estate taxes would not be imposed. Another alternative to achieve estate tax savings is to sell off some or all of your property in other states.
In conclusion, there are many things to consider in estate planning. While John’s concern may be avoidance of probate, Peter’s may be something else altogether. There are estate planning lawyers around you who are highly experienced in these areas, and know the best way to avoid certain unwanted issues. Consider hiring one now.