The Multi-State Estate Plan

Readers with homes or other property in more than one state need to give special attention to their estate plans. Each state has different rules and requirements, and your estate might have to run probate proceedings in each state. There is more work involved for either you or your executor or both.

There are lawyers who advise drafting separate wills and other estate planning documents for each state involved. You shouldn't need to do that much work. The estate plan, however, does need to recognize that multiple states are involved and make appropriate adjustments.

An estate generally must go through the probate process in order for title to the assets to be transferred to the beneficiaries. Real estate is probated in the estate where it is located. Personal property is probated in the deceased's state of residence, even if he or she dies in another state.

Occasionally there is a dispute over a person's state of residence, but that doesn't happen often. When you have houses in more than one state, part of your estate plan should be to clearly establish one state as the legal residence to avoid a dispute over your residence.

When there will be probate in more than one state, the same will can be submitted in probate proceedings in the different states. Each state, however, sets its own qualifications for wills, trusts, powers of attorney, medical directives, and other documents. Some have more requirements than others. For example, some states require only two witnesses to a will while others require three. Louisiana, because it is based on French law, has its own peculiar rules.

Estate planning attorneys, especially when they know that a person spends a significant time in more than one state, will draft a will so that it is valid in every state except Louisiana. The documents are written to comply with the state that has the toughest requirements. Be sure your estate planner knows where your different assets are located and where your time is spent. The planner then should ensure the will is valid at least in the relevant states.

The same strategy should be used with trusts. A trust is resident in and controlled by the law of the state where the trustee is located. A trust should be written, however, so the trustee or the location can be changed. To avoid problems with those changes, a trust should be written to be valid in as many states as possible.

Another way to deal with the potential of estate proceedings in more than one state is to plan your estate to avoid the cost and inconvenience of having the estate probated in two or more states.

One way to minimize probate is to create a revocable trust. The trust can hold a few key assets, such as real estate that is held outside the state of primary residence. Or it can hold title to all your assets. Anything owned in a trust does not have to be probated. The trust agreement should state how a successor trustee is determined and how the assets are managed and distributed. A will still would be needed for assets not held in the trust, but assets in the trust would avoid probate.

Another option to avoid probate for real estate is to own it through a partnership, LLC or trust. The partnership or LLC interests are personal property and could be probated with the rest of your personal property. The real estate would avoid probate.

Another way to avoid the probate problem is to establish joint title with right of survivorship for major properties. There are pitfalls to this, as I have discussed in past issues of Retirement Watch and don’t have space for here, but it might be an appropriate strategy for married couples whose estates are small enough to avoid estate taxes.

Your other estate documents also should be drafted to comply with the requirements of all states you frequent. These could include the general power of attorney, financial power of attorney, health care power of attorney or proxy, health care advanced directive, and living will. The health care documents should be drafted to comply in as many states as possible, because the governing law will be the state in which you need the medical care.

With a financial power of attorney, the key is to make the document acceptable to the financial institutions holding your accounts. Most institutions require that the power be filed with them in advance, and many will acknowledge only powers using their own forms or approved by their attorneys before they are needed.

Spending time or owning assets in multiple states adds a few complications to an estate plan. An experienced estate planner who has all the information can smooth out the complications and make the estate administration process easier. With a little work, you can avoid having probate cost extra time and money.

 

Bob Carlson is editor of the monthly newsletter Retirement Watch and the web site www.RetirementWatch.com. He also is author of the books The New Rules of Retirement and Invest Like a Fox…Not Like a Hedgehog.





Posted 10-22-2009 8:30 PM by Bob Carlson