Estate Planning for Owning Real Estate in Multiple States
- No Comments
If you own real estate in multiple states, we encourage you to consider the legal implications this may have on your estate plan. Multi-state estate planning can alleviate many legal complications, costs, and headaches when it comes to the probate process.
In Maryland, probate is the legal process of administering and settling a person’s estate after they pass, under the supervision of the Register of Wills and Orphans’ Court of the county where they lived. The probate process can be complex when it involves out-of-state assets, as each state carries its own unique set of probate laws and procedures.
While in certain states, such as Maryland, the probate process is relatively simple, working with multiple local administrations across the country can often be costly and time-consuming. In fact, the Personal Representative of the estate will often need to hire a lawyer in each state where the decedent owned real estate.
At Sessa & Dorsey, we recommend you consider creating a revocable trust for multi-state real estate. The assets owned by the revocable trust are controlled by the Trustee and are not subject to probate administration. Creating a revocable trust is a valuable way for property owners to aggregate all of their assets and grant management privileges to a successor Trustee following the grantor’s death or incapacity.
What is a Revocable Trust?
A revocable trust is created and funded during the lifetime of the grantor. As the name suggests, the grantor can change any or all parts of the trust throughout his or her lifetime. For example, if you create a revocable trust, you can add or remove beneficiaries at any time, as well as assets or property, and you can change the designated Trustee. You also can terminate the trust. A revocable trust becomes irrevocable when the grantor passes away or becomes incompetent, which means it is no longer amendable and the documents become final. Typically, the grantor is the Trustee and primary beneficiary of a revocable trust during his or her lifetime.
Revocable trusts are used to avoid probate and maintain the privacy of the grantor and the beneficiaries.
On the other hand, the assets in a revocable trust are not protected from the creditors of the grantor. The assets in a revocable trust may also be subject to state and federal taxes when the grantor passes away.
Benefits of a Revocable Trust
- Unification of Assets. While there may be time and complexity involved in drafting a revocable trust, the result is a single document that conveniently holds all assets in one place. This unification of assets becomes especially useful if you have several properties in various states.
- Flexibility. A revocable trust offers the opportunity to make a number of adjustments down the line. At any point, while managing the trust, the grantor and the Trustee can revise the provisions of the trust and can change the beneficiaries of the trust. A trust can often reduce the risk of familial or inter-personal conflict when it eventually comes to the distribution and selling of the properties.
- Provides Privacy. In most states, the probate process is available to the public. A revocable trust ensures that the details of an estate, including all beneficiaries and stipulations of a Will, are left confidential.
Potential Drawbacks of a Revocable Trust for Real Estate Owners
- Difficulty with Refinancing. For real estate owners looking to refinance a mortgage, lenders may refuse to refinance property owned by a revocable trust.
- Expenses to Transfer the Property. Transferring real estate to a revocable trust requires legal fees to have a deed prepared and may also include filing fees charged by the state to record the deed.
- No Protection From Creditors. A revocable trust does not provide creditor protection for the property.
A revocable trust may be a useful vehicle to manage and dispose of your real property, especially if you own real property in more than one state.
At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best trusts for their specific needs and desires. If you have questions about estates and trusts, please contact us at (443) 589-5600.
Related blog posts:
Revocable vs. Irrevocable Trusts: Which is Right for Me?