When a person dies, their property is distributed among their heirs according to their state's laws. This can be a complicated process, and it can get even more complicated when a person owns property in multiple states.
For example, many people that own property in multiple states have had their will and estate plan updated to reflect that. In some cases, these people created separate wills for each state. They have also had to name an executor for each state who is authorized to carry out their wishes in that particular state.
If it sounds like a long, complex process, you would be correct. Not only is it a longer process, but it could also lead to a lot of traveling by family members, some confusion, and some conflict.
So what can be done to avoid these? It's best to take the time to update your estate plan the right way if you own property in multiple states.
What Is the Right Way To Update Your Estate Plan if You Have Property in Different States?
There is no one "right" way to update your estate plan if you have a property in different states.
However, a preferred method would be one that reduces the burden of your loved one by:
a.) exposing them to the least possible amount of stress.
b.) legally lowering as much as possible the amount of estate taxes that need to be paid.
You can do these by setting up a trust, transferring your property to a family member, or setting up a Limited Liability Company (LLC).
Setting Up a Trust
If you have a property in more than one state, setting up a revocable living trust can be a great way to ensure that it will pass according to your wishes. A trust is valid in any state, so there is no need for probate. You simply need to make sure that the trust contains the correct instructions for distributing your property.
Some advantages of setting up a revocable living trust include:
a.) Control: The grantor of a living trust can retain complete control over the trust property during his or her lifetime.
b.) Privacy: A living trust is a private document, whereas a will is a public document.
c.) Estate Taxes: A living trust helps to reduce estate taxes.
d.) Disability: A living trust can provide for the management of property if the grantor becomes disabled.
e.) Death: Upon the death of the grantor, the trust property passes to the designated beneficiaries without going through probate.
To set up a revocable living trust, you will need to name a trustee and fund the trust with assets.
Transferring Property to a Family Member
If someone owns property in different states, they may want to consider transferring those properties to a family member (or to family members) during their lifetime for estate planning purposes. Essentially, you would basically be giving these properties to the intended heirs.
This can be done by working with an experienced Wilmington estate planning attorney to create a deed transferring the property. The deed should list the name of the family member(s) receiving the property and their other information.
It's important to make sure that the family member is aware of “the gift” and agrees to accept it.
In the United States, gifts are not taxable to the recipient up to either $16,000 per year, per individual making the gift, or $12.06 million as a lifetime estate tax exemption if the giver passes away in 2022. This is because the government recognizes that estates and gifts are ways of transferring wealth from one generation to the next, and they want to encourage this type of behavior.
There are tax advantages and disadvantages to this approach, which are beyond the scope of this article. Each situation is unique, and we are happy to discuss all these options at length during a consultation.
This method solves dilemma (a.) exposing them to the least possible amount of stress, and dilemma (b.) possibly lowering, as much as possible, the amount of estate taxes that need to be due. It is also probate free.
Setting Up a Limited Liability Company (LLC)
Another way to provide estate planning for people with property in different states is to set up a family LLC. A family LLC is a limited liability company that is typically owned and controlled by members of the same family.
The company can be used to manage family assets and to provide for the financial security of its members. It can also be used to reduce estate taxes and to make it easier for family members to transfer assets to one another.
Family LLCs can offer a number of advantages in estate planning and transfer, but an often overlooked side of having a family LLC is the possibility of its use to pass down property to the next generation in a way that is organized and efficient.
Contact Our Wilmington Estate Planning Law Firm
Owning property in multiple states can be a hassle when it comes time to settle an estate. But it doesn’t have to be. David Anderson and his team are here to help - we can assist you with creating a plan that will help take the complexity out of your estate planning, while still protecting what you’ve spent your life building.