When Your Estate Will Need Two or More Lawyers
Probate versus Ancillary Probate:
Welcome, I’m Estate Planning attorney Paul Rabalais and in this post, I describe the circumstances surrounding your estate, after you pass away, requiring the services of at least two attorneys or law firms in order to settle your estate.
So let’s start with the premise that if you own assets in your name when you pass away, such as a business, real estate, brokerage accounts, vehicles, or even a bank account in your name solely, there is going to be a probate in your state that governs the distribution of the estate assets that are in your name when you die. If you leave a last will and testament, your survivors will hire an attorney who will prepare numerous court pleadings that are required so that a judge will sign the appropriate court orders that your will is valid and other court orders requiring that banks, brokerage firms, your executor, and other third parties transfer estate assets to the people who are entitled to inherit them either because they are designated in your will, or if you have no will, because your state intestacy law requires that certain people inherit from you. There are exceptions to this rule that all of your assets go through this probate process - for example, your IRA and life insurance have beneficiaries on the financial institution’s paperwork that override anything you state in your will, and certain assets permit a Transfer on Death (or TOD) registration, where an asset is transferred almost immediately on your death to the people who are designated your beneficiaries on your TOD registration. But generally, if you own a wide variety of assets and they are all in your name when you pass away, chances are a probate will be necessary.
Most people who either leave an estate behind or inherit all or a portion of an estate would prefer that this lawyer and court-involved probate proceeding be avoided, primarily due to the inherent delays and legal expense and frustration involved. Positive information for many is that you can set up your estate in advance so that this court and attorney involved probate is avoided when you pass away, and you can do this by setting up your revocable living trust and titling your probate assets into your trust during your lifetime. Assets titled in the name of your trust when you pass away do not have to go through probate. The successor trustee you name in your trust instrument will have the authority to immediately disburse trust assets to trust beneficiaries outside of court delay and government interference.
But the rules are different if, at the time you pass away, you live in one state and own real estate in your name in another state. While your heirs may be pleased that they are inheriting from you, they may also be somewhat frustrated when they are told that they must go through two or more completely different probate proceedings that must take place in two or more different states. You see, the probate that takes place in the state where you reside when you die does not transfer any of the real estate that you own in your name outside of your state of domicile. If you live in one state and own property in another state when you die, your survivors will hire lawyers to complete the probate in the state where you reside when you die, and then they’ll discover that they need to hire one or more other sets of other lawyers in other states to handle the ancillary probate proceeding that must occur in those other states where you own real estate.
So if you live in one state when you pass away, and you own real estate in your name in three other states when you pass away, your survivors will hire ABC Law Firm to handle the probate in your state of residence, DEF Law firm to handle the ancillary probate in another state, GHI Law Firm to handle the ancillary probate in another state, and so on. All this will undoubtedly require tens of thousands of dollars in legal expenses (if not more) and probably years of delay, because you often either can’t or don’t want to start the ancillary probate in state #2 until you complete certain required actions in the probate of your state of domicile.
Now, if you DO own real estate in your name in multiple states, there are some things you can do to eliminate the need for multiple probates in multiple states. You could transfer all your properties to your revocable living trust that you create now - again assets in a trust when you die are not required to go through probate, your successor trustee could transfer those properties to your trust beneficiaries the day after you pass away. Or, one way to avoid the ancillary probate is to transfer those out-of-state properties that are in your name to your limited liability company (or LLC) that is in your name. Transferring out of state property to your LLC will avoid the ancillary probate which is required when the out of state real estate is in your name, but if you are an owner or member of an LLC which holds out of state real estate when you die, the ownership of that LLC which is in your name when you pass away must go through the probate in your state of residence after you pass away. Again, by titling your LLC in your revocable living trust, that avoids the probate process altogether in any state.
Ok, so if you own property in your name in multiple states, whether that is investment property, vacation property, inherited property, or otherwise, you likely have some work to do to make the settling of your estate simpler on your survivors. Have a great day.