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How Should You Approach Estate Planning in California if You Own Property in Multiple States?

How Should You Approach Estate Planning in California if You Own Property in Multiple States?

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How Do Estate Planning Laws in California Affect Property Owned in Other States?

Estate planning and administration can be complicated, even for seemingly simple estates. The complexity level can be much higher when estates involve properties in other states. That’s because much of estate planning law is handled by the individual states rather than at the national level. That means each state has its own estate planning and estate administration laws that govern properties, assets and probate in that state rather than the primary residential state of the property owner. 

This comes as an unwelcome surprise to many who think their home state is the only state with legal jurisdiction over settling their estates. It’s entirely possible that the home state has more favorable inheritance policies than the state where additional property is located. 

That’s why planning is vital. If not addressed correctly and with a considered approach to estate planning in the other states, this could lead to problems in probate and possibly to the distribution of those properties not as the estate’s owner intended. 

What Are Some Options for Handling Out-of-State Properties in Estate Planning in California?

One tactic to ensure that those properties are distributed as you want them to be is to consider putting them into a trust. An out-of-state property can be placed into a revocable living trust (sometimes called an inter vivos or grantor trust) by its owner (known as the grantor). A revocable living trust is a legal mechanism that removes the ownership of the property from the individual to the trust, which is then managed by a trustee. This is often the grantor who manages the trust until they’re no longer able to. Then, the grantor names a beneficiary, whether a person or organization, such as a nonprofit. During the grantor’s lifetime, the trust is managed by the trustee. Once the grantor passes, the assets owned by the trust are administered by the named successor trustee and ultimately distributed to the designated beneficiary or beneficiaries.  

While one person can be the sole trustee, it’s worth considering having a backup plan in case something unexpected causes the trustee to be unable to carry out their duties. It’s possible to have two people act as co-trustees, but this can occasionally lead to issues with decision-making between the two. Another approach is to name a backup trustee who doesn’t have the powers of the trustee unless the primary trustee is no longer able to manage the trust.

What Are the Benefits of a Revocable Living Trust?

A revocable living trust has several benefits over using a will for transfer.

  • The grantor still has control. As long as the grantor remains mentally competent, they can change or revoke the trust at any time. For example, if they wanted to leave one property to a child but later decide another child should receive it, they can change the trust to reflect that. 
  • As a general rule, assets held in a trust don’t go through probate. Unlike wills, which may require probate of the assets depending on the values, assets held in trusts generally don’t require probate. This can speed up the inheritance timeline and reduce the overall costs of settling the estate.
  • There may be less cause for contention. While unhappy family members may challenge wills, trusts are private, so it may be more difficult to challenge a trust. 
  • Trusts are private. This is because they don’t go through probate, which is a public process. If there are assets or items the grantor prefers not to become public, putting them into a revocable trust may help ensure that. 

What if Some of My Additional Properties are Rentals?

This is even more complex. Unlike private residential property, rental property requires additional work in terms of site management and tax implications (and the tax matters can involve both the local state government and the federal government). In these cases, one option (depending on the state where the property is located) is to move ownership of the rental property into a real estate holding company, such as a limited liability corporation (LLC), which may offer tax benefits (contact an experienced estate planning attorney to review the specifics of your property and estate). These arrangements can also prevent family members from inheriting the property against the grantor’s wishes.

The ownership of the LLC can then be placed into a trust and avoid probate, just as private property can. 

Are There Tax Implications When Property in Other States is Distributed as Part of an Estate Plan?

Every state has some type of state taxes that affect myriad things. Whether or not your property is affected by state tax depends on where it is and the tax laws of that area. This is another reason that it’s crucial to work with an experienced estate planning attorney who can advise you and your beneficiaries as to what to expect during an inheritance process. Depending on the tax status, there may be other options available, too. 

What Should I Do if I Have Property in Multiple States and Need to Begin Developing My Estate Plans?

Call Patricia Scott Law as soon as possible at 510-694-1098 to request a free 30-minute consultation (not applicable for trust administration cases). We understand how vital it is for you to develop a legally binding estate plan that manages all your properties across various states. As experienced, knowledgeable estate planning attorneys, we also understand the complexities of the law. We can review the specifics of your estate and help you determine the best approach to developing your estate plan.

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