When Owning Property in Another State Changes Your Estate Plan

Estate planning rarely comes down to a single rule or dollar threshold. The right approach depends on your family, your assets, and how you want things handled if something happens to you.

In practice, that means there are certain life circumstances that often prompt people to consider a trust, while others do not. This article focuses on one of those circumstances.

In this and future articles, I’ll occasionally use a fictional New Jersey family, the Smiths, to illustrate how different planning issues can arise in real life. While the names are made up, the situations are common, and meant to help explain how estate planning decisions are typically evaluated in context.

The Smiths’ Situation

In this example, the Smiths are a married couple in their forties with two young children. They own a home in New Jersey and have been steadily building their finances through accounts like a 401(k), an IRA, and a 529 plan.

Like many young families, they created last wills when their first child was born. They understood that a will is the only place they could legally name guardians for their children, so they handled that planning early.

Recently, Jane Smith’s mother passed away and Jane inherited her childhood home in Pennsylvania. The Smiths plan to keep the property as a vacation home and may rent it out when they are not using it.

This raises a natural question:

Do we need to update our estate plan to include a trust?

“It’s Only One Property”

When I meet with families in this situation, they often point out that the inherited property is not especially valuable. In the Smiths’ case, the Pennsylvania home represents only about ten percent of their overall estate.

They understandably wonder whether it makes sense to spend the time and money establishing a revocable living trust just because of one additional property.

This is where the analysis becomes less about dollar values and more about administration.

What Happens Without a Trust

When someone passes away owning real estate in more than one state, and that property is not held in trust, their estate generally must go through probate in each state where property is located. The second proceeding is often referred to as ancillary probate.

There are two primary downsides to this.

Cost.

In addition to court filing fees and administrative expenses, ancillary probate often requires working with attorneys in both states. Even when everything goes smoothly, this can significantly increase the cost of settling the estate.

Access.

During probate, assets are not owned by beneficiaries and generally cannot be accessed until the process is complete. This can delay a family’s ability to use, manage, or sell the out of state property.

If the property is held in a properly funded living trust, probate in the second state is typically avoided, and the property can pass according to the terms of the trust without court involvement.

Additional Practical Complications

Beyond cost and timing, families dealing with probate in two states often experience additional challenges.

Administrative burden.

Two probate proceedings mean two sets of rules, deadlines, filings, and court procedures. This can be overwhelming for an executor who may already be grieving and juggling personal responsibilities.

Higher likelihood of delays.

Minor mistakes, missing documents, or unfamiliar local procedures in the second state can cause significant delays in closing the estate and distributing assets.

Family stress.

Uncertainty about who has authority to act, combined with delays and lack of clarity, can lead to frustration and conflict among otherwise cooperative family members.

Planning for Incapacity, Not Just Death

Estate planning is not only about what happens after death. It is also about planning for possible incapacity during your lifetime.

Suppose Jane Smith decides not to create a trust and later develops Alzheimer’s disease. At some point, she will no longer be able to manage the Pennsylvania property, including paying taxes and utilities, handling repairs, or managing renters.

Jane did sign a power of attorney when she created her will. However, powers of attorney are governed by state law, and Pennsylvania may not accept a document drafted to meet New Jersey requirements.

If the power of attorney is not accepted, Jane’s family may need to initiate a guardianship proceeding before anyone can legally manage or sell the property. This can be time consuming, expensive, and stressful.

If the property is held in trust, this issue is often avoided. Upon incapacity, the successor trustee can step in immediately and manage the property according to the trust terms, without court involvement.

Bringing It All Together

Acquiring property in another state is a significant milestone, but it can also introduce estate planning complications that are easy to overlook.

Avoiding ancillary probate, reducing administrative burden, planning for incapacity, and minimizing stress for loved ones are all reasons a revocable living trust may make sense when owning real estate in multiple states. That does not mean a trust is automatically required in every situation, but it is often worth exploring.

If you own property in more than one state and are unsure how your current estate plan would work, a planning conversation can help clarify your options and determine the best path forward.

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