THE IMPORTANCE OF TRANSFERRING OUT-OF-STATE REAL ESTATE TO A LIVING TRUST

by Thomas D. Begley, Jr., Esquire, CELA, and Ethan J. Ordog, Esquire

The Issue

            If a decedent dies a resident of one state, but owns real estate in a second state, the estate must be probated  in the state of primary residence of the decedent and then again in the state in which the real estate is owned.  This can be time-consuming and expensive.  For example, a Florida attorney recently advised that the cost of probate for a New Jersey resident owning a $750,000 home in Florida would be approximately $26,100, if probate was required in Florida.  This cost could be avoided by simply transferring the Florida real estate to the New Jersey resident’s Living Trust during the lifetime of the New Jersey resident.

Considerations in Probate

            The steps required for probate differ from state to state. If an individual who was not a resident of New Jersey owns real estate in New Jersey, the process is roughly as follows:

• Probate in State of Residence. The Executor  probates the Will or the Administrator completes the process of securing appointment as personal representative of the Estate so as to allow the administration for the estate to commence in the state in which the decedent was a resident.
• Obtain Exemplified Copies. If the decedent had a Will, the Executor obtains a “Exemplified Copy” of the Will and Letters Testamentary from the state where the decedent died.  If the decedent died without a Will, the Administrator obtains  the exemplified probate record reflecting the appointment of the personal representative and corresponding authority granted by the state in which the decedent was a resident.  These documents are the ones which would be utilized to secure further authority in the state in which the real property existed that was not the decedent’s primary state of residence.
• Ancillary Probate in New Jersey. The Exemplified probate documents are then  submitted in the county in New Jersey in which the real estate is located.
• Letters Testamentary/Letters of Administration. The Surrogate in New Jersey will acknowledge the recording of the exemplified documents and/or issue  ancillary probate documents, reflecting the recognition of the authority of the personal representative, with the type of documentation directed depending on whether or not there was a Will.
• Determination of Potential Estate/Inheritance Tax. New Jersey, since 2018, has not assessed an Estate Tax.  Moreover, while New Jersey still has an Inheritance Tax, it does not apply to assets going to a spouse or lineal ascendants or descendants.  Rather, the Inheritance Tax is imposed against assets transferred to  other recipients, including siblings, non-lineal relatives and other named beneficiaries of the Estate.  The applicability of the tax and any potential amount should be determined before transferring the property.  Tax, if any, should then be paid.
• Transfer or Sale. Once these steps have been completed, the Executor or Administrator can transfer the property or sell it, if appropriate.

If the decedent is a resident of New Jersey, the initial probate would take place in New Jersey and the ancillary probate would take place in the state where the out-of-state real estate is located.  The rules would be similar but not the same as ancillary probate in New Jersey.  Regardless, the process can be  time-consuming and expensive.

The Solution

            The solution to solving this dilemma is simply to transfer the out-of-state real estate to the client’s Living Trust during lifetime.  Probate in the state of residence would still be required, but probate in the state where the real estate is located would not.  Surprisingly, Begley Law Group sees very few estates where out-of-state real estate has been transferred to a Living Trust.  The reason generally given is that no one explained the benefits of this strategy at the time the Wills and Trusts were prepared.  The cost of preparing the Living Trust and Deed is usually considerably less than the cost of out-of-state probate.  While there may still be tax implications to consider or resolve, this action can reduce costs associated with probate, as well as allow for a more efficient and timely administration, particularly with respect to the real property at issue.