How to Handle Out-of-State Real Estate in Your Estate Plan

January 27, 2025
Erin Calpin

Estate planning can be complex, especially when your assets include out-of-state real estate. Whether it’s a vacation home, rental property, or vacant land in another state, it’s essential to address these properties carefully in your estate plan to avoid legal complications and ensure your wishes are carried out. This blog will guide you through key considerations and strategies for handling out-of-state real estate in your estate plan.

The Challenges of Out-of-State Real Estate in Estate Planning

Managing out-of-state real estate as part of your estate plan can present several challenges, including:

1. Probate in Multiple States: Real estate is subject to the laws of the state where it’s located. If you pass away owning property in another state, your estate may need to go through an additional probate process called ancillary probate in that state. This can increase legal fees and delays.

2. State-Specific Laws: Each state has unique laws regarding property ownership, inheritance, and taxes. These differences can complicate the transfer of real estate to your heirs.

3. Tax Implications: Owning property in another state can expose your estate to additional state taxes, such as estate or inheritance taxes, depending on the state’s regulations.

Strategies for Incorporating Out-of-State Real Estate into Your Estate Plan

Proper planning can help you address these challenges and streamline the management and transfer of out-of-state real estate. Here are some effective strategies:

1. Establish a Revocable Living Trust A revocable living trust is one of the most effective tools for handling out-of-state real estate. By transferring ownership of the property into the trust, you avoid the need for probate in both your home state and the state where the property is located. The trust allows for seamless management and transfer of the property to your designated beneficiaries.

2. Create a Limited Liability Company (LLC) Placing your out-of-state property in an LLC can help simplify the estate planning process. The LLC’s ownership interests can be transferred without the need for probate in the ancillary state. Additionally, this strategy can provide liability protection for the property, shielding your other assets from potential claims related to the property.

3. Add a Co-Owner or Use Joint Ownership Another option is to add a co-owner to the property deed, such as a spouse or adult child, through joint tenancy with the right of survivorship. When one owner passes away, the property automatically transfers to the surviving co-owner without probate. However, this approach requires careful consideration of the tax and legal implications of the change in title.

4. Consider a Transfer-on-Death (TOD) Deed Some states allow a transfer-on-death (TOD) deed, which lets you name a beneficiary who will inherit the property upon your death. This option avoids probate and is generally easy to implement. However, it’s not available in all states, so check whether it’s an option for your out-of-state property.

5. Address State-Specific Tax Obligations Work with an experienced estate planning attorney or tax advisor to understand the tax implications of owning property in another state. They can help you minimize estate or inheritance taxes and ensure compliance with state-specific requirements.

Steps to Take When Updating Your Estate Plan

If you already have an estate plan, make sure it accounts for your out-of-state real estate. Here are steps to update your plan effectively:

1. Review Your Current Estate Plan Examine your existing estate plan documents to ensure your out-of-state property is properly addressed. If the property is not included, update your will, trust, or other relevant documents.

2. Work with an Estate Planning Attorney Collaborate with an attorney who has experience with multistate estate planning.   An attorney can help you navigate the complexities of state-specific laws and recommend the best strategies for your situation.

3. Keep Your Beneficiaries Informed Clearly communicate your intentions for the out-of-state property to your beneficiaries. Whether it’s to keep the property, sell it, or share it among heirs, clarity can help avoid misunderstandings and disputes.

4. Periodically Review and Update Your Plan Changes in property ownership, tax laws, or your family situation may necessitate updates to your estate plan. Regularly review your plan to ensure it remains aligned with your goals and legal requirements.

Why Professional Guidance Is Essential

Handling out-of-state real estate in your estate plan requires careful consideration of legal, financial, and tax factors. Without proper planning, your loved ones could face unnecessary legal hurdles and expenses. Working with professionals, such as an estate planning attorney, financial advisor, or tax expert, ensures your plan is comprehensive and effective.

Out-of-state real estate can add complexity to your estate plan, but with the right strategies, you can simplify the process and ensure your assets are protected and passed on according to your wishes. Whether through a trust, LLC, or other legal tools, addressing this aspect of your estate plan early can save your heirs time, money, and stress in the future. Start by consulting with an experienced estate planning attorney to create a plan that reflects your unique circumstances and goals.

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Borenstein, McConnell & Calpin, P.C. is a Wills & Estate Planning law firm serving Central and Northern New Jersey, as well as New York City. We strive not only to give you a great client experience, but to become your trusted adviser for life. To reach Alec, please send an email to alec@bmcestateplanning.com.

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