Purchasing out of state properties, whether for a vacation home or an investment property, can be both exciting and a challenge. It is a common trend nowadays for retirees have a permanent home in their state of residence and ‘fly south' for the colder winter months. For example, a retired friend of mine, let's call her Edith, has lived in Clarksville her entire life, but after a major snowstorm she decided she had reached her limit with cold weather. Following the trend of many of her retired friends, she purchased a vacation home in Naples, Florida. Now Edith enjoys Clarksville from April through October, and then she happily packs her bags for Florida to spend the winter months on a sunny golf course.
When Edith first began talking about purchasing a vacation home, I knew we would have to revise her estate plan to account for an out of state property. You see, having an out of state property brings unique challenges to an estate plan. Since Edith is a resident of Tennessee, a Tennessee probate court cannot control Florida property. As such, a second probate action would have to be filed in Florida to distribute her vacation home to the beneficiaries of her will.
So what is the solution? How do retirees and avid vacationers purchase additional properties out of state and still make sure their estate will avoid probate in their non-residential state? The answer is: Revocable Living Trusts.
Out of State Properties: Wills vs. Trusts
Before purchasing a vacation home, Edith only had a will. When she told me about the purchase, she asked me if her current estate plan would still work with the addition of the new property. I told her no, we needed to do some updating. I explained to her that she needed to put the property in a revocable living trust. “But why would I go through the hassle of creating a trust when I already have a will?,” she asked.
Here's the answer: Wills are great for basic estate plans with few assets and limited property. Before purchasing a Florida vacation home, Edith's estate was relatively simple. She had lived in the same home for the last forty years and she did not have any additional properties in her name. She had a couple of checking accounts, a savings account, and an IRA. Upon her death, her estate was to be split evenly among her children. Pretty straightforward.
However, your estate becomes more complex with the more properties you own. This is especially true if you own properties in different states. Tennessee law states that the court in the county where you actually resided at your death has primary jurisdiction over the decedent's estate. However, if the you owned properties in another state, then that state would have ancillary, or secondary jurisdiction over the real property in that state.
In other words, if you have a property in your name only in a different state, a second probate action would have to be opened in that state when you die. Courts only have jurisdiction within their own state. So if you own a property in Florida or Kentucky, but you are a resident of Tennessee, your county court in Tennessee does not have jurisdiction over your Florida or Kentucky property.
How a Revocable Living Trust Works for Real Estate
A revocable living trust works by removing property from your name and titling them in the name of the trust. If you chose to create a revocable living trust, your estate planning attorney will help prepare the trust. That estate attorney will also then prepare quitclaim deeds that transfer the property from your name to the name of the revocable trust. Once those deeds are filed with the Register of Deeds, the property is officially titled in the name of the trust.
After your death, a successor trustee takes over your trust. That successor trustee then manages and distributes the real estate owned by the trust to the named beneficiaries of the trust. Quitclaim deeds would need to be prepared by an attorney to transfer the property from the trust to the beneficiaries. However, no probate is needed because the real estate is not owned by any individual, its owned by the trust which has an appointed successor trustee.
- If you own out of state property, you need more than a will to avoid probate.
- Putting out of state property into a revocable living trusts ensure that real estate will not go through properties
If you own out of state properties, but you do not have a revocable trust, contact an experienced estate planning attorney to help you move your assets to a trust. Call our office at 931-218-7800 to meet with Clarksville estate planning attorney John W. Crow, or book an appointment online today.