Strategies For Owning Property In Multiple States

November 9, 2017 Advisory

Ownership of property in multiple states can raise many estate planning issues. Whether you own property directly or through an entity (such as a trust or corporation) may have a dramatic impact on the settlement of your estate and the taxes due. Fortunately, there are numerous ways to structure ownership of property. Which way is best for you and your family will depend on your goals and interests.

Key Concepts

When determining how to hold real property, you should keep in mind a few concepts relating to domicile, probate and state estate taxes.

Domicile versus residence. Although the words domicile and residence are often used interchangeably in conversation, they are two distinct legal concepts. Your domicile is the place you intend to make your home. You may have more than one residence, but you have only one domicile. Domicile is determined by a number of factors, which can include the location of your principal residence, the length of time that you spend at a residence, where you file your income taxes and your subjective intent as to where your domicile is.

State Estate Taxes. For estates of substantial value, federal estate taxes are always a consideration (even at times, such as now, when there is a contemplated repeal of the federal estate tax). But the state in which your property is located may impose a separate state estate tax that should also be considered. Connecticut, New York, New Jersey, Massachusetts and Pennsylvania impose state estate tax; Florida does not. However, if, for example, a person domiciled in Florida owns property in New York, he or she may be subject to New York estate tax on the New York property. Fortunately, through careful planning, it may be possible for the Floridian to avoid this estate tax.

Probate. Probate is the process by which a court grants a person (an executor, personal representative or administrator) authority to deal with property owned by a now deceased individual as directed in the individual's will. During the probate process, beneficiaries and heirs may contest the validity of a will and may object to how an estate has been administered. While this may lead to litigation, probate is not necessarily a bad thing, as it provides a mechanism to resolve legitimate disputes. Nonetheless, probate can be costly, time consuming and stressful for surviving family members. Contrary to a popular misconception, minimizing (or even completely avoiding) probate and minimizing estate taxes do not go hand in hand. More typically, estate taxes apply regardless of whether one or more state probate proceedings are required.

Ancillary Probate. Most individuals own property outright, and, upon death, a will controls the disposition of the individual's property. Typically, the executor named in the will initiates the required probate proceeding and the probate judge grants the executor authority to deal with the decedent's assets. If a decedent owns property in multiple states, the executor may have to apply to the probate court in each jurisdiction and request authority to deal with property in that place. These additional probate proceedings in other states are called "ancillary probate."

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