Do you have a vacation home – perhaps a condo in Florida or a cottage on the shore? Vacation homes need to be considered in estate planning, since each and every state in which you own real estate will be involved in the settlement of your estate, unless you arrange for the property to avoid probate.
The laws governing both real estate and estate planning are made at the state level, so only the courts of a particular state have authority to resolve issues regarding title and ownership of real estate located in that state. So, that condo in Florida will require an “ancillary probate” in Florida. Not only will ancillary probate proceedings be necessary, but there can be inheritance and estate tax due to those other states as well.
If you own out of state property, your estate plan should eliminate the need for these ancillary probate proceedings. There are several estate planning tools that can be used to allow your vacation home to avoid probate. The three most popular are:
1. Joint Ownership
This simple device means that the real property will pass to the surviving joint owner(s) on your death, and no probate proceeding is required. Changing the title to include joint owners requires the preparation and recording of a new deed, and the disadvantages of joint ownership need to be examined. For example: If you were to name your adult child as a joint owner, and that child was sued or going through a divorce – the vacation home may be put into jeopardy.
2. Revocable Trusts
Another solution that will allow the home to avoid probate is to transfer title of out-of-state real estate to a revocable living trust. The title to the vacation home is then held by a Trustee, not by the individual. When the individual dies, the trust continues; and there is no need for a probate.
3. Irrevocable Trusts
A Qualified Personal Residence Trust, QPRT, is an irrevocable trust which provides for the occupancy of the residence by the parents for a period of years. At the end of the term, their right of occupancy ends and the beneficiaries become the new owners. When the trust is created, a gift is made; but the value of the gift is discounted – so there will be estate tax savings, and the property avoids probate.
Work with an estate planning attorney to put together a comprehensive estate plan that meets your specific needs, whether it is avoiding probate, drafting a will, or creating a trust.