This is the fourth in a series of posts on whether it makes sense to create a revocable living trust or not. You can read previous posts here (health and age), here (family dynamics) and here (privacy and estate size).
The last reason that supports transferring assets into a living trust is based on a settlor’s ownership of real property. The need for a living trust is particular important if the settlor owns real property in multiple states.
Based on a number of legal and constitutional reasons, states courts, including probate courts, only have jurisdiction over real property located inside their territorial boundaries. A Virginia court cannot dictate orders on a piece of real property in Maryland. Without jurisdiction, a court does not have the power to distribute or transfer the real property to a beneficiary. If a testator owns property in several states, like a home at the beach or in the mountains, an ancillary probate administration will likely have to be opened in each state where the real property is owned.
The issues with ancillary probate are multi-faceted. Ancillary probate adds to the cost of administration. Multiple probate administrations generate duplicative fees, including multiple court fees, accounting fees, and attorneys’ fees. It could also mean paying state estate taxes on that real property if the ancillary probate state has an estate tax.
A second issue is if a person dies intestate. Each state has different rules on intestate succession, and it is possible that the heirs of an intestate estate could be different in the state of the primary probate proceeding versus the state of the ancillary probate proceeding. That could mean potential litigation as the two beneficiaries fight over the property.
Another issue is that primary administration in the state where the decedent died cannot be closed until the ancillary probate administration is closed. Most times this is not a problem. But, if the real property needs to be sold ancillary probate administration could drag on if the property is unattractive or the real estate market is depressed like in many parts of the country. As ancillary administration drags on so does the primary administration which will further increase the costs of probate.
Finally, the next post in this series will be about when it doesn’t necessarily make sense to establish a living trust.