If you own real estate in different states, you may be leaving a mess of nightmarish proportions for your executor (the person who oversees and distributes your assets when you die). The court-supervised process, called probate, ensures the orderly accounting and transfer of your wealth according to your will. If you own property in multiple states, your executor will have to go through the probate process in each state where you owned property. Not only is the probate process different in each state, but it costs money and takes time (sometimes years). The lake house you own in Michigan and your residence in Virginia will most likely mean your executor must initiate probate proceedings in both states.
However, with a little estate planning, you can greatly reduce the headache. One common solution is to transfer ownership of the property to a revocable living trust.
A trust is simply a separate legal entity or “person.” Like you or me, a trust can own real estate, stocks, bonds, bank accounts, and any manner of personal property such as stamp collections, paintings, bicycles, and books. Each trust operates according to the trust terms—spelled out in the trust document—as determined by the person who creates the trust. When you fund a trust, you transfer the ownership of an asset from yourself to the trust.
Trusts come in many different flavors, but one of the most common types is the revocable living trust. The terms of your living trust stipulate how you want the assets in your trust managed during your lifetime and after your death.
Trust assets are not subject to probate. Therefore, by having your trust own your home in Michigan, your executor may not have to initiate the costly, time-consuming probate process in two states.
Read the rest of the series on Estate Planning Mistakes to Avoid:
Mistake #1: Not Having an Estate Plan
Mistake #2: Assuming a Will is All You Need
Mistake #3: Failing to Name Beneficiaries on Retirement Accounts and Insurance Policies
Mistake #5: Giving Gifts to the Wrong Beneficiaries
Mistake #6: Failing to Implement the Estate Plan
Photo of Mamma Nonno e Silvia alla mia comunione, by Enrico, used under Flickr Creative Commons license.