Owning property in more than one state feels like a good problem to have. A lake house in one state, a rental property in another, maybe a second office building somewhere else. From an estate planning standpoint, though, it creates a headache that most owners do not see coming until it is too late to fix easily.
The headache has a name: ancillary probate. I want to walk through what that means and how to avoid it.
1. What ancillary probate actually is
When you die owning real property in your home state, your estate typically goes through probate there. But if you also own real property titled in your individual name in another state, that property usually cannot be handled by your home state's probate court. It requires a separate probate proceeding in the state where the property sits.
That means your family could be dealing with two, three, or more probate cases at once, each with its own court, its own local counsel, its own timeline, and its own fees. It is slower, more expensive, and more frustrating than most people expect.
2. How a revocable living trust solves this
If you retitle your out-of-state property into a revocable living trust during your lifetime, the property is no longer owned by you individually when you die. It is owned by the trust. Since the trust does not die, there is nothing for a court to probate.
Your successor trustee simply continues managing or distributes the property under the terms of the trust, regardless of which state it sits in. This is one of the most practical reasons multi-state property owners use a revocable trust, even when their overall estate is not large enough to worry about estate tax.
3. Using an LLC to hold the real estate
Another option, often used alongside a trust, is holding each property in its own limited liability company. The LLC owns the real estate, and you own an interest in the LLC. If that LLC interest is then held by your trust, you get liability protection from the entity and probate avoidance from the trust, layered together.
This structure also simplifies things when a property is a rental or a business asset rather than personal-use property, since it keeps that asset's liabilities separate from your other holdings.
4. Which state's law should govern?
Multi-state ownership raises questions about which state's law applies to your trust, your will, and how each property will ultimately be treated. Real property is generally governed by the law of the state where it is located, even if your trust was created elsewhere and you live somewhere else entirely.
This is why the trust and any related entity documents need to be drafted with an eye toward every state where you hold property, not just your home state. A plan that only considers your state of residence can leave gaps around the other properties.
5. Do not wait until it is inconvenient
Retitling property into a trust or an LLC takes some paperwork now: deeds, entity formation, coordination with title companies or lenders. It is a fraction of the time and cost your family would otherwise spend navigating multiple probate courts after you are gone.
If you own real estate in more than one state and are not sure how it is titled or what happens to it at your death, reach out through blgattorney.com or call my Oklahoma City office. We can look at what you have and figure out the simplest way to keep your family out of multiple courthouses.