Out-of-state real estate often presents an additional obstacle (and cost) for many estates. When a resident of Pennsylvania dies with an out-of-state property titled solely in his name or with a fractional portion of a property titled to him as “tenant-in-common”, that property or fractional interest cannot be sold, mortgaged, leased or even given away without first probating that individual’s will in the second state. That process, called “ancillary probate” requires that the will (if there is one) be probated in Pennsylvania and, subsequently, that an “exemplified copy” of that will be obtained and probated in the county of the second state in which the real estate is located. Usually, the out-of-state probate process requires retaining an out-of-state attorney, and it may or may not necessitate a trip to the out-of-state courthouse. Some key features and inconveniences of the ancillary probate are that (i) there will be a probate fee that is tied to the value of the real estate and (ii) there may be a need for the executor to actually post a bond (and pay the related premium) to protect the second state’s probate office/register. If the decedent died without a will, the process is much the same, however, the likelihood of needing to post a bond is greater.
The ancillary probate process is far from an insurmountable obstacle, but it is an avoidable one. The most efficient method of avoiding it is the use of a revocable trust. This sort of trust essentially vests all power over the trust property in the person funding the trust (in this case the out-of-state property owner), allows him to revoke (or undo) the trust, allows him to change the terms of the trust, does not require much accounting, and never requires a separate federal income tax return. Most importantly, for purposes of this article, if the out-of-state real estate is put into the revocable trust, it is not a probate asset, and the decedent’s personal representative does not have to expend the time, inconvenience and effort of ancillary probate.
A word of caution: many lawyers and advisors market revocable trusts or a pour-over will/revocable trust estate plan for everyone as a method of avoiding probate. We do not so advise. Universal use of a revocable trust may be good advice in some states, however, in Pennsylvania, the probate process is fairly quick and fairly inexpensive, and generally our advice to clients is that that revocable trust gets in the way. It frequently confuses the issue of who owns what assets, does not save on inheritance or estate taxes, does not ensure the privacy that is touted as a benefit of such trusts, and oddly enough usually does not result in a complete avoidance of probate. For most people a will makes more sense. The point of this article however is that for the limited purpose of titling out of state real estate, a revocable trust that holds only those assets can be of benefit. It will almost certainly streamline the eventual administration of your estate and minimize administration costs.
– Rod Fluck