Avoiding Probate for Multistate Property Owners
When it comes to estate planning, owning property in multiple states can complicate matters, especially when it comes to avoiding probate. Probate can be a time-consuming and costly process, but with the right strategies, you can streamline the transfer of assets to your heirs while minimizing the probate burden in two or more states.
The reason the probate burden is greater for multistate property owners is your family will have to typically go through probate in each state where you own property. While I've never heard anyone say, "I can't wait for my family to go to Court when I pass away," that is what will happen unless you plan appropriately.
Note: If you want to brush up on the basics of Georgia estate planning (Wills, Probate, Power of Attorney, Revocable Trusts, Irrevocable Trusts and Advanced Healthcare Directives) take a look at these free ebooks.
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Comprehensive Estate Planning
One of the best places to start considering your options if you are a multistate property owner is to develop a comprehensive estate plan that includes Trusts, Wills, and other essential estate planning documents. I've developed a 12-step guide that will help you through this process and you can access this blog post by clicking here.
But, consulting with and hiring an experienced estate planning attorney, like the kind you find at the Farrell Law Firm, will help you understand the intricacies of multi-state property ownership.
Revocable Living Trust
Perhaps the best way to avoid probate in every state where you own property is to establish a Revocable Living Trust. By transferring these properties into your Revocable Living Trust, your family can bypass probate in every state where you own property.
What is a Revocable Living Trust?
A Revocable Living Trust is a legal document that allows a person to place their assets into a Trust while retaining full control over those assets while they are alive.
Components of a Revocable Living Trust
There are few key components to a Revocable Living Trust. First, is a person called the Grantor or Settlor. This is the person who establishes the Trust. Second, is the Trustee. This is the person who will be controlling the assets which have been placed inside the Trust. There may be multiple trustees such as when a married couple establish a Trust. Finally, there are the beneficiaries. These are the people who will benefit from the Trust.
Often times, the Grantor, the Trustee, and the Beneficiary may be the same person or people. For example, a married couple want to establish a Trust to make things easier on their family after they pass away, so they create a Revocable Living Trust and place their assets into the Trust. So, they are the Settlors. They also name themselves as Trustees of the Trust because, since the Trustee is the person who controls the assets, they want to be in charge of their assets while they are alive. So, they are the Settlor and the Trustee. Finally, because they want to benefit from these assets while they are alive, they name themselves as the beneficiaries of the Trust. So, in this instance, you can see this married couple are the Settlors, Trustees, and Beneficiaries of the Trust.
There are may be other parties to a Trust, such as a Successor Trustee. This is the person who will distribute the assets after the Settlors pass away. There also may be secondary beneficiaries. Perhaps these beneficiaries are the Settlor's children. They will not benefit from the Trust until after the Settlor's have passed, hence the name secondary beneficiaries.
Benefits of a Revocable Living Trust
There are many benefits to a Revocable Living Trust, but the primary benefit for people who own multi-state property is probate avoidance. Since your family will have to go through probate in every state where you own property, the savings in money and time will certainly make up for the costs in establishing the Trust.
Another benefit to the Revocable Living Trust is the ability to plan for one's incapacity. Wills do not go into effect until after you've passed away. So, there is no benefit to the Will if you become disabled or incapacitated. With a Revocable Living Trust, there can be provisions in the Trust for managing the assets inside the Trust should you become disabled or incapacitated. This ensures a person, named the Successor Trustee, can step into your shoes to help manage your assets without the need for a court-appointment conservator or guardian.
In addition to the above-listed benefits, another benefit to the Revocable Living Trust is the ability and flexibility the Settlor has in managing and controlling the assets inside the Trust. If they continue to be alive and competent, they can buy more assets to put into the Trust; they can sell what's inside the Trust; they can donate what's inside the Trust; and they can manage what's inside the Trust without any significant restrictions.
Finally, one of the more significant benefits to the Revocable Living Trust is that it allows for the smooth transfer of assets after you've passed away. The assets inside the Trust can be distributed to your family without going through the time-consuming and potentially costly probate process.
What happens if I pass away while owning property in multiple states?
If you pass away without an estate plan that includes a Revocable Living Trust, it's highly likely your family will have to go through multiple probates. First, your family will have to open a probate where you lived when you passed away. This is called a domiciliary probate. This is the primary probate that will be the cog in the wheel of the other probates. Once the domiciliary probate has been started, your family will open another probate in the state where you owned the other property. This is called an ancillary probate.
For example, if you lived in Georgia when you passed away, but owned a condo in Panama City Beach when you passed away, your family will first open a probate here in Georgia and then open a probate in Florida. Imagine if you own a cabin in North Carolina. Your family would have to go through three probates.
There's an easy fix here. Get a Revocable Living Trust and probate in multiple states can be avoided.
Joint Tenancy with Rights of Survivorship
In some states, you can own property with a spouse or another individual with something called "rights of survivorship." What this means is if one of the persons owning the property passes away, then the property will automatically pass to the surviving owner and avoid probate at the same time.
Owning property with a spouse under rights of survivorship is a great way to avoid probate, but it becomes problematic if something were to happen to both spouses at the same time, or if the surviving spouse doesn't take the necessary steps to ensure the property that is now in their name alone avoids probate.
The best way to avoid these problems is to establish a Revocable Living Trust while both spouses are alive or before anything happens to the surviving spouse. This way, it won't matter if something happens to both spouses at the same time or if you are unable to establish an estate plan in time if you happen to be the surviving spouse. Establishing a Revocable Living Trust now makes it easier on everyone down the road.
Beneficiary Designations
The idea behind the Revocable Living Trust helping you if you happen to be a multi-state property owner is you take the ownership of these multiple properties and then transfer them into the name of the Trust. But, there are some things you might not want to put into the name of the Trust because you can designate beneficiaries on these financial instruments.
The most common types of financial instruments you can designate beneficiaries on include life insurance policies, annuities, 401(k)'s and IRA's. In these cases, you might consider naming the Trust as the primary beneficiaries on these instruments so the assets get filtered through the Trust, but there is an exception with your 401(k) and IRA. There are tax consequences with designating your Trust as a beneficiary of your 401(k) and IRA so you should not undertake this process without consulting with an experienced estate planning attorney. But, you most likely will make the primary beneficiary on your life insurance policies and annuities the Revocable Living Trust you establish to help your family avoid multi-state probate.
Regular Review and Updates
One of the biggest mistakes I see clients make is they take their estate plan, put it into a drawer, then let 20 years go by. Estate Planning is not a "set-it-and-forget-it" exercise. Regularly reviewing and updating your estate plan is essential to ensuring it works the way you want it to.
There are two times when you should consider updating your plan. First, if there's been a change in your family circumstance. Some examples of this might include moving to a new state; having someone come into your life; having someone leave your life; or, having a sudden increase or decrease in wealth. Second, if there's been a change in the law. You probably wouldn't know if there's been a change in the law, but we keep our clients up-to-date on the laws because we send out newsletters often to keep them educated on any changes in the current estate planning laws.
Our Farrell Law Firm estate planning attorney and staff can assist with creating a wide range of trusts designed uniquely to serve your needs. The Farrell Law Firm represents clients in Marietta, East Cobb, Kennesaw, Smyrna, Atlanta, Roswell, Rome, Athens, Columbus, Macon, and across the state of Georgia, Tennessee, and Texas.
Questions About Georgia Trusts? Contact Lawyer John Farrell at (678) 809-4922 or Connect Online.
