Addressing Property in Another State in Estate Planning
Many families have an out-of-state property, cabin, or vacation home that’s passed down by putting the property in a will. While that’s an option, this strategy might not make it as easy as you think for your family to inherit this home in the future.
Florida Today’s recent article entitled “Avoiding probate: What is the best option for my out-of-state vacation home?” explains the reason to look into a more comprehensive plan. While you could just leave out-of-state property in your will, you might consider protecting your loved ones from the often expensive, overwhelming and complicated process of dealing both an in-state probate and an out-of-state probate.
In other words, if you are a Louisiana resident with land, a condo, or a vacation home in Mississippi, your estate will be subject to a Louisiana probate, and your land, condo, or vacation home in Mississippi will be subject to a second probate. That means hiring two (2) lawyers! If you have land in three (3) states, that means hiring three (3) lawers!
There are options to help avoid probate on an out-of-state property home that can save your family headaches in the future. Let’s take a look:
- Revocable trust: This type of trust can be altered while you’re still living, especially as your assets or beneficiaries change. You can place ALL your assets into this trust, but at the very least, put the out-of-state property in the trust to avoid the property going through probate in the other state. Another benefit of a revocable trust is you could set aside money in the trust specifically for the management and upkeep of the property, and you can leave instructions on how the vacation home should be managed upon your death.
- Irrevocable trust: similar to the revocable trust, assets can be put into an irrevocable trust, including your out-of-state property. You can leave instructions and money for the management of the property. However, once an irrevocable trust is established, you generally can’t amend or terminate it. But if the trust is established in a state other than Louisiana, you still may retain a “general power of appointment” (a type of “future interest allowed by common law states) over the property.
- Limited liability company (LLC): You can also create an LLC and transfer your out-of-state property to the LLC to eliminate probate and save you or your family from the risk of losing any other assets outside of the property if sued with respect to goings on at the property. You can protect yourself if renting out a vacation home should the renter decide to sue. The most you could then lose is that property, rather than possibly losing any other assets. Having beneficiaries rent the home will help keep out-of-pocket expenses low for future beneficiaries. With the creation of an LLC, you’re also able to create a plan to help with the future management of the vacation home.
- Transfer via a deed: When you have multiple children, issues may arise when making decisions surrounding the home. This is usually because your wishes for the management of the house are not explicitly detailed in writing.
- Joint ownership: If the property is in a state other than Louisiana, you can hold the title to the property with another that’s given the right of survivorship. However, like with the deed, this can lead to miscommunication as to how the house should be cared for and used.
- Usufruct for Life: If you are a resident of a state other than Louisiana and own property in Louisiana, this would be a option for your Louisiana property. In this case, you get to use the property for your life, with ownership vested in the “naked owners” which they inure to fully upon your death. It can have certain income tax advantages as well.
As always, be sure to consider the tax implications of each option. Types of taxes that can affect your plan include state property taxes, federal estate and gift taxes, state inheritance taxes, and state property transfer taxes (like a “sales tax” as it pertains to real estate, which we don’t have in Louisiana). State tax regimes can vary widely.
Plan for the future to help make certain that the property continues to be a place where cherished memories can be made for years to come. Talk to a qualified estate planning attorney for expert legal advice for your specific situation.
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
If you liked this article, “Addressing Property in Another State in Estate Planning” read also these additional articles: What Should I Know about Burial Insurance? and Does Potential IRS Change Have an Impact on Estate Plan? and Understanding the Issues of Elder Law and What are the Advantages of a Business Trust?
Reference: Florida Today (July 2, 2022) “Avoiding probate: What is the best option for my out-of-state vacation home?”