Why does owning real estate in another state complicate estate administration?
Property ownership triggers probate in every state where real estate is located if title remains in an individual’s name. California residents face an expensive primary probate plus separate ancillary probate proceedings in each additional state. Coordinating multiple courts, attorneys, and filings dramatically increases costs, delays, and administrative burden for surviving family members.
What exactly is ancillary probate and why is it so costly for families?
Ancillary probate represents a secondary court proceeding required in the state where out-of-state real estate is situated. Each jurisdiction imposes its own statutory attorney fees—often calculated on the property’s full gross value—meaning a $1 million vacation home in another state can generate tens of thousands in additional legal fees beyond California’s already high probate costs.
How does a California revocable living trust eliminate out-of-state probate risks?
A properly funded California revocable living trust can own real property in virtually every U.S. state and territory (except possibly Louisiana). Transferring title via recorded deed from the individual to themselves as trustee places the asset inside the trust. Upon death, the successor trustee assumes control nationwide without any probate—primary or ancillary—in any jurisdiction.
What common mistake undermines even well-intentioned estate plans involving out-of-state property?
Many individuals establish a trust yet fail to fund it correctly by recording the necessary deed for the out-of-state property. Purchasing vacation homes or inheriting land directly in personal names—forgetting the trust exists—leaves the asset exposed to full probate in that state despite having a California trust in place.
When should owners use LLCs for out-of-state real estate and what precautions are required?
Limited liability companies prove valuable for rental properties or Airbnb operations, offering liability protection and potential tax advantages. However, transferring mortgaged property into an LLC may trigger the lender’s due-on-sale clause, accelerating the loan balance. Ideally, the LLC purchases the property initially, though this typically results in higher commercial interest rates.
What tax implications arise when inheriting or owning property across state lines?
Certain states impose inheritance or estate taxes that California does not, creating unexpected tax liability upon transfer. Rental income generated out-of-state generally requires filing non-resident returns and paying income tax in that jurisdiction. LLC ownership adds additional state filing and franchise tax obligations.
How do transfer-on-death deeds compare to living trusts for avoiding probate?
Some states offer transfer-on-death (TOD) deeds that bypass probate, but these severely limit beneficiary flexibility and future planning options. Revocable living trusts provide far greater control, asset protection possibilities, and the ability to include detailed distribution instructions—making them the superior choice for multi-state property owners.
What immediate actions should California residents take when they own property in another state?
Establish or confirm an existing revocable living trust, then immediately record a deed transferring each out-of-state property from individual ownership to the trust. This simple funding step eliminates all future probate exposure nationwide and represents the single most effective way to protect family from costly, multi-state court proceedings.
