Snowbird Estate Considerations
As the snow arrives in South Dakota it's easy to picture escaping south in the winter. With the growing popularity of AirBnB and VRBO we are seeing more families opt to rent their winter homes. However there are still those who have a desire to own their winter getaway and have a place to call their own. For those who own real estate in multiple states here are some estate planning issues to consider.
You can own property in multiple states but you only have one domicile. Your domicile is the legal term for your main place of residence. The state you are domiciled is where any state estate or income taxes will be paid and where your estate will go through probate. You can declare your domicile in estate planning documents but states can contest if facts show you spend more time in their state versus your domicile. Some risk factors include where your bank accounts are, where your medical visits take place, and where you vote.
Probate is the legal process that takes place after someone dies. It is designed to ensure the estate is properly distributed to heirs and designated beneficiaries and any debt owed to creditors is paid off. The probate process often takes six to nine months to complete. And of course it comes with costs!
Ancillary probate is what happens when you own real estate or personal property in different states at the time of death. Real property in another state is subject to probate in that state. This adds a layer of expense and complexity and can add a burden to your executor who may live across the country.
How to Avoid Ancillary Probate
Many people get around ancillary probate by deeding their out of state real estate to a revocable living trust. There are more complicated ways such as family limited partnerships or limited liability companies but the revocable trust is a relatively inexpensive way to avoid probate. Most estate planning attorneys can draft a revocable trust to hold out of state real estate. The deed on the house should be placed in the trust.
If you maintain a bank account in the other state you should add a transfer on death registration to it. Transfer on Death (TOD) accounts allow you to name a beneficiary for the assets. For a couple they could have a joint checking account and attach a TOD registration. The beneficiaries don't have access to the funds until after all primary account owners pass away. This method allows the assets to pass directly to your heirs and avoid probate.
Most individuals should have power of attorneys for financial and medical decisions as part of their estate planning. Some states do not recognize power of attorney documents drafted elsewhere in which case you would want to draft power of attorneys for each state. Check with your estate planning attorney to verify that your legal documents will be recognized across state lines.
If you have additional questions on how to protect your assets feel free to reach out to us using the form below.
Brian Berkenhoff, CFA is a fee-only financial advisor in Brookings, SD. Serving clients locally in Brookings, Watertown, and Sioux Falls and across the country virtually. Birch Investments specializes in wealth management solutions, including financial planning and investment management.