Yes, a testamentary trust established in a will can generally apply to out-of-state property, however, it requires careful planning and adherence to the laws of both the state where the will is probated (the domicile state) and the state where the property is located (the situs state).
What are the implications of probate across state lines?
Probate, the legal process of validating a will and distributing assets, is typically governed by the laws of the state where the deceased resided at the time of death. However, when real property is located in a different state, an “ancillary probate” proceeding may be necessary in that state. This means a separate probate case must be opened in the state where the property is located to transfer ownership according to the terms of the testamentary trust. According to a recent study by the National Conference of State Legislatures, roughly 5-10% of estates require ancillary probate due to out-of-state property ownership. This can add significant time, expense, and complexity to the estate administration process. A testamentary trust established within a will provides instructions for managing assets *after* probate, but the probate process itself must still be navigated in each relevant state.
How does a testamentary trust differ from a living trust when owning property in multiple states?
A testamentary trust is created *within* a will and only comes into effect after the testator’s death and the will has been probated. A living trust, conversely, is created during the testator’s lifetime, and assets can be transferred into the trust immediately, potentially avoiding probate altogether. With a living trust and out-of-state property, the trust document itself should specifically address how the property is to be managed and distributed, ideally by establishing a clear understanding of the laws in both states. I once worked with a client, Martha, who owned a condo in Arizona while residing in California. She had a will with a testamentary trust for her grandchildren, but failed to address the Arizona property specifically. When she passed, her family faced a frustrating and costly ancillary probate in Arizona, delaying the distribution of those assets by almost a year. It was a perfect example of how failing to proactively plan for out-of-state property can create significant hurdles.
What steps can be taken to simplify estate administration with out-of-state assets?
Several strategies can streamline the process. First, careful will drafting is critical. The will should explicitly acknowledge the out-of-state property and direct the executor to take appropriate steps to transfer it according to the terms of the testamentary trust. Secondly, coordinating with local counsel in the situs state can prove invaluable. They can navigate the specific probate procedures and ensure compliance with local laws. Thirdly, utilizing a “pour-over will” in conjunction with a living trust can be effective. This allows assets not already in the trust to “pour over” into the trust upon death, simplifying distribution. Approximately 60% of estates with out-of-state property benefit from consulting with attorneys in multiple jurisdictions.
How did proactive planning save the day for the Henderson family?
The Henderson family experienced the benefits of proactive planning firsthand. Mr. Henderson, a retired engineer, owned a vacation home in Colorado, while he and his wife resided in San Diego. He worked with our firm to create a comprehensive estate plan, including a will with a testamentary trust for his children, and specifically addressed the Colorado property. He also funded a revocable living trust and retitled the Colorado property into the trust’s name. When Mr. Henderson passed away, the transfer of the Colorado property was seamless. Because the property was already held in the trust, no ancillary probate was required, saving his family significant time, expense, and emotional distress. It was a testament to the power of thoughtful estate planning and the importance of addressing out-of-state assets proactively. As we often tell our clients, a little preparation can go a long way in protecting your loved ones and ensuring a smooth transition of your assets.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
Map To Point Loma Estate Planning Law, APC, a trust lawyer: https://maps.app.goo.gl/JiHkjNg9VFGA44tf9
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