When a person dies leaving assets owned individually in the decedent’s name only, those assets will need to pass through a court-supervised process known as “probate.” The primary probate for a decedent is conducted under the jurisdiction of the appropriate probate court in the state where the decedent lived. An “ancillary probate” is an additional probate process that is necessary if the decedent owned any real estate outside of the state where the primary probate process is being conducted.
It can be a little tricky to understand the concept but in law, all assets “live” somewhere. Most types of non-physical assets are considered “intangible” property. Bank accounts and brokerage accounts, for example, are intangible assets. The law considers that intangible property “lives” where the account holder lived. So no matter where in the world the decedent owned a bank account, that account will be within the scope of assets passing through the primary probate process. Similarly, the law considers tangible “personal” property as being attached to the residency of the owner. So if the decedent dies owning a motor vehicle that happens to be parked out of state, that motor vehicle is still part of the primary probate.
In contrast, the law considers real estate to “live” where the real estate is located. Real estate that is located outside the jurisdiction of the probate court where a decedent lived cannot be handled as part of the primary probate. Rather, a separate process will need to be conducted in that other state. Even if there is only one parcel located out of state, the need for that second process can drive up costs precipitously, and inevitably there will be added delays and complications for the fiduciary.
Assume a Connecticut resident dies with owning real estate in Florida and Massachusetts. Let’s also assume that the decedent owns Connecticut assets totaling $600,000, and that the real estate in Massachusetts is worth $500,000. The primary probate process will occur in Connecticut, at an average cost (for executor fees, attorneys’ fees, required accountants and tax filings, probate court fees and the like) of 3-5% of the value of the decedent’s gross estate. An ancillary probate proceeding will also have to be brought in Florida, which has set by statute the fees for attorneys and executors. In fact, attorney’s fees alone may be as high as 3.75% of the gross estate. Further, the decedent is now required not only to file an ancillary proceeding in Massachusetts (and thus to hire a Massachusetts attorney), but has triggered the Massachusetts estate tax, requiring the filing of an additional estate tax return and the expense that that entails, on top of the estate tax due! So in this example, there would be 3 probates and estate taxes paid that could have been avoided.
Is there a way to avoid the need for an ancillary probate if you own assets located out of state? Yes! While real estate is a type of asset that continues to “live” in the state where the real estate is located, recall that a decedent’s probate estate is comprised only of individually owned assets. If a person were to formally convey the property to a properly designed trust, or a business entity such as a limited liability company, then it may be possible to avoid probate in the nonresident states.
It is true that there are costs involved with setting up and properly maintaining a revocable trust, an irrevocable trust or a business entity. However, we find that for many clients, the benefits outweigh the costs. For anyone who owns real estate located out of state we highly recommend you come and talk to us about planning so that the estate and/or trust settlement process goes as smoothly as possible with the minimum involvement with the probate system.
