Owning property in more than one state is increasingly common for New Yorkers. Many people have a vacation home in Florida, a ski cabin in Vermont, or an investment property elsewhere. While owning property in multiple states can be rewarding, it also complicates estate planning. It’s important to understand how out-of-state real estate is handled when you pass away and how to simplify the process for your heirs.
Why Out-of-State Property Creates Estate Planning Challenges
Each state controls the process for transferring real estate located within its borders. That means even if your will is probated in New York, your executor cannot transfer or sell property in another state without following that state’s rules.
This often leads to ancillary probate, which is a secondary probate proceeding that takes place in the state where the property is located. For example, if you live in New York but own a condo in Florida, your executor will likely need to go through probate in both states. This can delay distribution, increase costs, and add stress for your family.
Understanding Ancillary Probate
Ancillary probate is a secondary court process to recognize the New York probate in another state. The local court reviews your will, confirms the executor’s authority, and allows the property to be transferred or sold. It still requires hiring an attorney licensed in that state and paying filing fees, adding cost and delay.
How to Avoid Ancillary Probate
There are several planning tools that can help you transfer out-of-state property without the need for a second probate process. The right option depends on the property’s location, use, and value.
1. Create a Revocable Living Trust
One of the most effective ways to avoid ancillary probate is to place your out-of-state property in a revocable living trust. You can serve as the trustee during your lifetime, retaining full control of the property. Upon your death, the successor trustee can transfer or manage the property without court involvement.
This ensures privacy, speeds transfers, and allows all property to be managed under one plan.
2. Consider Owning Property Through an LLC
If you hold out-of-state investment or rental properties, forming a limited liability company (LLC) can be another good option. The LLC, not you personally, owns the property, and your ownership interest can be transferred through your estate plan.
This structure also provides liability protection and may simplify taxes. However, it works best for income-producing or investment property, not personal vacation homes.
3. Add a Transfer-on-Death Deed (If Available)
Some states allow property owners to record a transfer-on-death (TOD) deed, which names a beneficiary who will automatically inherit the property when you pass away. This avoids probate entirely.
New York does not currently permit TOD deeds, but if you own property in a state that does, such as Florida or Arizona, this may be a simple solution. An estate planning attorney can coordinate your documents to ensure your plan stays consistent across states.
4. Use Joint Ownership Carefully
Owning property with another person as joint tenants with right of survivorship can allow the surviving owner to automatically inherit the property without probate. This can work well for spouses, but it is not always ideal for others. Adding someone to the deed can trigger tax issues or expose the property to the co-owner’s creditors.
Before adding a co-owner, get advice on whether it aligns with your overall estate goals.
Tax Considerations for Out-of-State Property
Owning real estate in another state affects taxes. Property, income, and estate tax rules vary widely. For example, New York has its own estate tax, while Florida does not. If your estate is near the New York exemption limit, out-of-state property still counts toward that total.
You may also need to file additional state income tax returns if your property generates rental income. Coordinating with both a tax advisor and your estate planning attorney ensures your plan covers all implications.
Keeping Your Documents Coordinated
If you use a trust or LLC to hold property, make sure deeds are properly retitled and recorded in the other state. Also ensure your executor or trustee knows where the properties and related documents are located. A clear, organized plan will make things much easier for your loved ones.
Speak to an Attorney
Out-of-state property can create unexpected complications if not planned for properly. At the Law Offices of Juliet Cohen, P.C., we help New Yorkers develop estate plans that cover all properties, no matter where they are located. Whether you own a vacation home, rental property, or investment real estate, our attorneys can help you structure ownership to reduce taxes, simplify transfers, and protect your legacy.
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