What is Ancillary probate and how to avoid it in estate planning

As the weather turns colder and thousands of northeastern “snowbirds” prepare to head south to their winter homes, thoughts turn to warm gulf breezes, Christmas lights in palm trees, and, of course, what the heck to do about that looming ancillary probate problem.

Well, maybe they’re not thinking about that last one, but they should be.

What is ancillary probate and why think about it?

Ancillary probate is a second probate proceeding necessary when a decedent has property to transfer in a state other than the one handling their estate.

To fully understand ancillary probate, you first need to understand probate.

What is probate?

Basically, probate is a court supervised process in which the decedent’s Will is authenticated, the decedent’s debts are paid and the remaining assets are distributed to beneficiaries. That is the short version.

The long version is that petitions are filed, notices are published, executors/administrators are appointed, lawyers and accountants are hired, income, estate, and inheritance tax returns are prepared, etc. Like any other process, it can be smooth and efficient, or long, expensive and complicated.

In either event, it is a process that occurs in the state where the decedent resided, and with the exception of federal estate and income taxes, that state’s law governs the proceedings.

When is probate not enough?

The potential problem arises because each state court’s power or jurisdiction extends only to real property within that state.

So, if you’re a Pennsylvania resident, your estate would be probated in Pennsylvania, under Pennsylvania law. But only your real property in Pennsylvania and all tangible personal property would be subject to those proceedings.

So, the question is, what happens when a decedent resides in one state but owns real property in another state? The answer is, a second, or ancillary, probate proceeding must be held in the other state. If the decedent owned property in three or four different states, well, you can see where this is going.

Is this necessarily a problem? Well, not if you are one of those rare individuals who enjoy a lot of court proceedings. All kidding aside, multiple court proceedings results in multiple fees and court costs. It may mean multiple attorneys, ancillary executors, and accountants, and of course their fees. It may even lead to additional travel and time.

Above all, it means adding another level of complexity to a process that may already be complicated.

How can I avoid ancillary probate?

So, if you are a resident of Pennsylvania and own a winter home in Florida or some other sunny state, what can you do to avoid the added cost, time and complexity of ancillary probate?

Lifetime gifts

You could consider lifetime gifts, which basically consists retitling your property, adding your children as co-owners with a right of survivorship.

For example, if you own a Florida vacation home that you intend to leave to your children, you could lifetime gift the home to them, and upon your death—as a matter of law—the property will pass to your children without the need for any court proceeding.

Life estate

You could also gift the home outright to your children while retaining a “life estate” in the property. Your children would own the property, but as long as you lived, you would have the right to use the property, and have the responsibility for maintaining it.

These are simple solutions that would make ancillary probate unnecessary. But they do have their drawbacks. Such lifetime transfers may have tax or Medicaid consequences. The transfers may subject your property to the debts and liabilities of your children. Such transfers also limit or prohibit your ability to sell the property should the need or desire arise.

Living trust

Another more flexible solution is placing your property in a “living trust”. A living trust is a fully revocable trust which becomes irrevocable upon your death. The trust, rather than you, actually owns the property. You, as the trustee of the trust, would retain full control of the property. Upon your death, the trustee would distribute the assets owned by the trust to the beneficiaries named in the trust documents, avoiding the need for probate or ancillary probate.

The benefit of a living trust is again, its flexibility. As trustee, you have total control over the trust property. As settlor and trustee, you control and can change how and to whom the trust assets are paid. Finally, if circumstances change, you retain the right to revoke the trust altogether and have the property returned to you, personally.

These are some simple solutions for simple problems. For even more complex issues, like business or investment properties in other states, you can structure your ownership interests, through stocks, partnerships, and LLCs in ways that those out-of-state interests pass in-state through your will or outside of probate altogether.

There is no “one size fits all” solution to guarantee an orderly, efficient transfer of your property to your beneficiaries upon death. Each solution has its own pros and cons, some of which may or may not be relevant to your situation.

The attorneys at High Swartz can help you tailor your estate planning to ensure that your assets go where and how you want them, as simply, quickly, and efficiently as possible, hopefully avoiding the need for any ancillary probate proceedings.