Addressing Out-of-State Property in Your Estate Plan​

When putting together an estate plan, most people focus on the assets they own close to home. For New York residents, that often means a primary residence, bank accounts, retirement savings, and personal property. But what happens when you own property in another state? Whether it’s a vacation home in Florida, a rental property in New Jersey, or inherited land in Pennsylvania, it’s essential to make sure these assets are properly addressed in your estate plan.

Out-of-state property can introduce legal and logistical challenges if not planned for correctly. Failing to account for these assets can complicate the probate process, increase costs, and delay asset distribution. The good news is that there are strategies available to manage out-of-state property more efficiently.

This article will explain why out-of-state property matters in estate planning, the problems it can create, and the tools you can use to avoid those problems.

Why Out-of-State Property Requires Special Attention

Every state has its own probate process and property laws. When a New York resident passes away, their estate typically goes through probate in New York. However, if the person owned real estate in another state, that property may need to go through a separate probate process in that state. This is known as ancillary probate.

Ancillary probate can be costly and time-consuming. It often involves hiring a second attorney, dealing with different court systems, and navigating unfamiliar legal requirements. It also means that beneficiaries may need to wait longer to receive their inheritance.

By planning ahead, you can help your loved ones avoid the added stress of multiple probate proceedings.

Common Situations Where This Becomes an Issue

Here are a few examples where owning property outside of New York can complicate matters:

• Vacation homes: A summer cottage in Vermont or a beach house in South Carolina might have sentimental value, but these properties can trigger probate in those states.

• Rental or investment properties: Out-of-state rental properties can bring in income during your lifetime, but they also require careful planning to pass on smoothly.

• Inherited property: If you inherited land or real estate in another state, it becomes part of your estate and must be considered in your overall plan.

• Timeshares: While often overlooked, timeshares are real property interests in most cases and must be handled appropriately.

In all of these cases, the property must be handled according to the laws of the state in which it is located—not New York.

Ways to Address Out-of-State Property in Your Estate Plan

Fortunately, there are several options to ensure that out-of-state property is managed effectively as part of your estate plan. Which strategy is best depends on your goals, the nature of the property, and your overall financial situation.

Create a Revocable Living Trust

One of the most effective ways to avoid ancillary probate is to place the out-of-state property into a revocable living trust. A trust allows you to transfer ownership of the property to the trust during your lifetime. Because the trust is a separate legal entity, it continues to own the property after your death, eliminating the need for probate.

This strategy can simplify the transfer process, reduce costs, and keep your estate matters private. In addition, trusts offer flexibility—you can update them as your circumstances change.

Consider Joint Ownership with Rights of Survivorship

Another method is to title the property jointly with another person, such as a spouse or adult child, with rights of survivorship. When one owner passes away, full ownership automatically transfers to the surviving owner without the need for probate.

While this approach can work in some situations, it’s not without risks. Adding someone to a deed can expose the property to their creditors or legal issues. It can also create tax complications. Always consult an attorney before using this option.

Use a Transfer-on-Death (TOD) Deed

Some states allow property owners to use a transfer-on-death deed to name a beneficiary for their real estate. When the owner dies, the property automatically transfers to the named beneficiary without probate.

Unfortunately, New York does not currently recognize TOD deeds for real estate. However, if your out-of-state property is located in a state that allows TOD deeds, this can be a straightforward solution.

Form a Limited Liability Company (LLC)

If you own rental or investment property out of state, placing it in an LLC can serve dual purposes—limiting liability during your lifetime and simplifying the transfer upon your death.

An LLC can be owned by a trust, providing a layered estate planning structure that protects the property and allows for smoother management after you pass. This option may also offer tax benefits and protection against lawsuits.

Coordination Is Key

It’s important to make sure your estate planning documents work together. If you set up a trust but fail to transfer the out-of-state property into it, the property may still go through probate. If you update your will but forget to adjust how your out-of-state property is titled, your wishes may not be carried out as planned.

A well-coordinated plan will take into account all of your assets, regardless of location, and ensure they are handled in a way that reflects your goals and reduces the burden on your family.

Don’t Rely on a One-Size-Fits-All Approach

Estate planning is highly personal. What works for one person may not work for another. The value of the property, your family dynamics, your long-term goals, and state-specific laws all play a role in determining the right strategy.

That’s why it’s important to work with an estate planning attorney who understands how to manage multi-state property issues. An attorney can help you choose the right tools and keep your plan up to date as laws or circumstances change.

Conclusion

Out-of-state property adds an extra layer of complexity to estate planning. Without proper planning, your loved ones may face unnecessary legal hurdles, delays, and costs. By proactively addressing these assets in your estate plan, you can make the process easier for your family and ensure your property is passed on according to your wishes.

If you’re a New York resident with property in another state, now is the time to review your estate plan. A few strategic decisions today can prevent major complications tomorrow.