Just when you thought you were done with the fine print of a dead loved one's will, you find an "ancillary" problem, in another state.
In the following paragraphs, we offer a brief understanding of probate, ancillary probate, and how one can avoid this sometimes tricky situation. Talk to an estate lawyer for more insights.
What is ancillary probate?
Ancillary probate is a second probate proceeding necessary when a decedent (the person who has died) has a 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-form definition of probate 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. We take a deeper dive into probate in another article found here.
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. Make sure you work with an estate lawyer conversant in your state laws.
When is "regular" 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 result in multiple fees and court costs. It may mean multiple estate 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? We have the answers below.
Lifetime gifts
You could consider lifetime gifts, which basically consist of retitling your property, adding your children as co-owners with a right of survivorship. This consists of joint ownership, and the surviving owner absorbs the full ownership when the other owner dies.
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.
Great, so what are the downsides?
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 a 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. A trust and estate attorney can determine what works best for you.
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. Please call us at 1-833-LAW-1914 or visit our Estate Planning page for individual estate lawyers and email addresses.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.