Multi-state estate planning is complex and relies heavily on your state’s laws. Washington and Idaho laws regarding real estate in other states can lead to common concerns and challenges. Careful planning can help create an estate plan that is in the best interest of your estate, your beneficiaries, and your family, but the plan must go further than a standard estate plan.
MULTI-STATE ESTATE PLANNING. Your estate plan must be specific to you if you own property in multiple states. A lot of residents in Washington and Idaho have second homes either on the Oregon coast, Hawaii, California, Arizona, and a multitude of other states.
State laws dictate that a person can only have one domicile. A domicile is a place you reside most often and list as your residence for tax purposes, but if you spend time in two states, you’ll come across domicile problems.
Multi-state estate plans must consider which home you reside in most often. If there’s an equal distribution of time between two homes, the court must decide on your domicile. You don’t want your estate to go through court proceedings in multiple states.
ESTATE TAX CONSIDERATIONS IN MULTI-STATE ESTATE PLANNING. If, for example, the court found your domicile to be California and not Washington, California would be the state where your:
* Estate pays taxes
* Income tax is paid
* Probate takes place
Estates may be able to avoid federal estate taxes, but each state has its own rules on estate taxes. It may be beneficial to have your primary residence in one state over another due to the estate tax of your state.
You can decide to declare your domiciled state in your estate plan, but someone could contest your declaration if the facts don’t line up. A smart choice is to solidify the domiciled state by maintaining the following in that state:
* Voting registration
* Physicians
* Bank accounts
* Employment
WHY YOU NEED A REVOCABLE LIVING TRUST. The laws of Wills and intestate succession were written 300+ years ago and didn’t contemplate that we’d be able to own real property in Hawaii given our horse and buggy transportation. By placing assets (such as a home, vacation, or business interest) in a revocable living trust, or by naming the trust as the beneficiary on non-probate accounts, such as life insurance or brokerage accounts, your assets will be distributed according to your wishes and will do so outside of probate. Ancillary probate, or probate in a state that is not considered your primary residence, can occur when real estate is owned in another state. Ancillary probate can lead to higher estate expenses and inconvenience for your heirs.
Ancillary probate can be avoided using several estate planning tools, like a family limited partnership or an LLC, but by far the greatest tool is a revocable living trust, or RLT.
Here’s the reality: If you own property in multiple states, you have to go through probate in every state in which you own real estate. So, if you owned property in 5 states, that’s 5 lawyers, 5 ancillary probates…OR, you can create a revocable living trust in Washington, retitle the other 4 properties in the name of the trust, and when you die, you only own Washington property. And if you move, you just amend your RLT to be of the state that you’ve moved to.
FINAL NOTES ON MULTI-STATE ESTATE PLANNING. Property can be passed down to beneficiaries in several ways. Probate is not always ideal, but there are additional strategies that can be leveraged in an estate plan:
* Co-ownership of the property through joint tenants. Joint tenants take control of the property upon your demise.
* Wills allow for the passing of property to beneficiaries, but a simple Will with no sophisticated tax planning does not offer enough protection for a high net worth estate. Multiple estate planning measures should be taken to lower the risk of estate taxes and a contested will.
* Qualified personal residence trust (QPRT) can be created, which removes a property or residence from your estate with a reduced gift tax. You retain the rights to the property for the duration of the trust.
* Transfer on Death (TOD) designations transfer property to individuals or charities upon your death, but many states do not offer this option. A lawyer will be able to determine if a TOD is in your estate’s best interest, depending on respective state laws.
Multi-state estate plans must be drafted to match the laws of each state where the property is owned. A trust may be in your estate’s best interest, but there are several estate planning tools and techniques that can be implemented to reduce taxes, risks, and expenses for beneficiaries.
When creating a multi-state estate planning strategy, it’s important to have an experienced lawyer in your corner that understands your state’s laws and can minimize the expenses of your estate. Give us a call at 253.858.5434 to see how we can be of service. We represent clients throughout Washington and Idaho and are available to meet in person, by phone, or via video conference.