Probate is the name for the legal process of determining how a person’s possessions are divided when they pass away. For many people, this process is confined to the state where they lived at the end of their life.
If you have assets in another state, then you will have to open a probate case in that state as well. That process is called ancillary probate. As is the case with standard probate, there are steps you can take to avoid ancillary probate. Probate can be a costly and time-consuming process, and the thought of going through it in multiple states can be too much for some people. The good news is that proper estate planning could avoid the need for ancillary probate entirely.
Understanding Ancillary Probate
The term “ancillary” refers to something secondary to the primary probate proceeding. Specifically, ancillary probate is a secondary legal process for assets in another state that are not covered by the primary probate case.
Ancillary probate is often necessary because probate laws are based on the state where the property “resides.” Therefore, if you live in one state and own property in another, your survivors could face a primary probate case in your home state and an ancillary filing in the state where your other property is located. Typically, ancillary probate deals with real estate.
When Ancillary Probate Becomes Necessary
Ancillary probate can become necessary under different circumstances. It may not be immediately clear to the estate administrators that ancillary probate is necessary until they have a chance to review the decedent’s assets. Suppose it is determined that there is real property or other large assets in another state. In that case, it may be necessary to open up an ancillary probate case in the state where the property is located.
This process will differ from traditional probate, given that it will deal exclusively with the out-of-state asset. It is also important to note that not every asset must go through probate—even when it is located in another state. Certain assets transfer immediately upon death to a beneficiary without the need for probate. For example, a motor vehicle in another state with a transferable on-death designation will become the beneficiary’s property without the need for ancillary probate.
Dealing With Out-Of-State Probate Court
As is the case in the primary probate case, the administrator must secure authorization in the second state to administer the assets. Usually, the court overseeing the ancillary probate case will grant authorization if the original state has issued authorization letters. This approval will allow the administrator to deal with assets in both states.
One of the major issues that arise is the cost of ancillary probate. While the secondary state might be accommodating, that does not mean they will waive the fees associated with ancillary probate. Ancillary probate means that surviving beneficiaries will be on the hook for two sets of costs and fees: court costs, probate fees, and legal fees.
Ancillary Probate Without A Will
While many ancillary probate proceedings involve a will, this process can occur if there is no will in place. Unfortunately, ancillary probate can be difficult without a will. This is thanks to the varying intestate succession laws that each state adopts. Intestate succession is the process a state uses to determine who inherits from a person that died without a will. Each state approaches this calculation differently, which can lead to conflicts during ancillary probate.
Because of the difference in state laws, the person that inherits the out-of-state asset might not be the individual that would have inherited it had it been located in the home state. This could lead to costly disputes and result in an outcome that leads to litigation. In addition to the tension and frustration this can cause, it can also lead to confusion and delays. In some situations, a drawn-out ancillary probate process could cause lengthy delays with the rest of the probate in the home state.
Avoiding Ancillary Probate
The unfortunate reality for any beneficiaries staring at the prospect of ancillary probate is that there is no simple way to avoid the process after the death of their loved one. Once a person dies, it is too late to do any estate planning or remove the out-of-state property from the estate.
There are several options available to a person that could help their heirs avoid the need for ancillary probate in the future, however. With an appropriate estate plan, it could be possible to bypass ancillary probate in another state. This is true even for individuals with multiple properties in multiple states.
Beneficiary Designations
One of the simplest ways to avoid ancillary probate is through beneficiary designations. A beneficiary designation is a legal designation of an asset’s new owner upon the original owner’s passing. These are common with retirement and bank accounts. Because these assets immediately transfer ownership upon death, there is no need for probate—ancillary or otherwise.
The unfortunate part about beneficiary designations is that they are only an option for certain types of assets. This option could be ideal for an individual retirement account held by a bank in another state. The same is true for a motor vehicle that is located out of state as long as it has a transferable on death clause. In each of these situations, ancillary probate would not be necessary.
Transferring real property upon the death of the owner is also possible in some cases. This is thanks to an estate planning tool known as a transfer on death deed. The transfer on death—or TOD—deed automatically transfers ownership of real property to a beneficiary upon the owner’s death without the need for probate. According to California law, this transfer is conserved as a non-probate transfer.
Gifts
Gifts are another option that could help avoid ancillary probate. Remember: it is only necessary to probate the assets that are in a person’s estate at the time of their passing. Gifting real estate or other assets held in other states removes the need for probating them in the future.
Unlike beneficiary designations, a generous gift is also an option when it comes to out-of-state real estate. By deeding the property to an heir during their lifetime, the owner could ensure that they avoid any costly and unnecessary probate. Of course, the major drawback is that the property owner will no longer enjoy the property during the remainder of their lifetime. This can be problematic, especially if the income derived from that property is necessary to cover the basic needs of the original owner. There may also be gift tax consequences that need to be considered.
Joint Ownership
Another simple option is owning the property with a beneficiary. Joint ownership will allow the other owner of the property to avoid probate. This is due to the way the courts deal with jointly-owned property when one of the owners dies. The death of one owner does not eliminate another owner’s rights to the property. Ancillary probate would only be necessary if there were no living owners left.
There are formal requirements for joint ownership to serve as an estate planning tool, however. This ownership must be in writing, for example. Joint ownership for out-of-state real property will only avoid probate if the second owner’s name is on the deed. There are also potential tax consequences, which should be carefully examined before making beneficiary designations. For example, community property may be a better solution for property with potential capital gains and losses.
Living Trusts
One of the best estate planning options for avoiding ancillary probate is the living trust. In fact, living trusts are a strong option for avoiding probate entirely—in any state.
A living trust is a useful tool for keeping assets out of probate in general. Everything from real estate to investment accounts could be held in a living trust. This process involves transferring ownership of your assets to the trust. The thought of giving away your assets might sound problematic, but you could still retain control and use of these assets by serving as a trustee.
The important factor regarding these trusts is that anything held by the trust is not considered your property for probate purposes. If you place out-of-state real estate into the trust, your heirs will not have to go through ancillary probate in order to distribute the property.
Creating a living trust involves a trust document. This document is similar in many ways to a last will and testament. It will set out your intention to transfer property to the trust and set out the initial trustee. Many people creating living trusts name themselves as trustees. This gives you control over the asset.
Talk To An Attorney About Your Ancillary Probate Needs
While there are many estate planning options available to you, some are more effective than others at avoiding the possibility of ancillary probate proceedings. If you own property in multiple states, an appropriate estate plan could help your heirs avoid the headaches and challenges that can come with going through multiple probate cases across state lines. The Law Office of Janet L. Brewer is ready to help you build the plan that is right for you.
