Do you live in Massachusetts and own real estate in another state?  Perhaps it’s a ski condo in New Hampshire, a winter retreat in Florida, or a deeded timeshare in North Carolina?  If so, your out-of-state property requires special consideration as part of your estate plan.  Here are five things to consider when planning for out-of-state property:

1. Get the Advice of Local Counsel.  Many owners convey out-of-state real estate into a trust as part of the estate planning process.  Others may choose to convey the property to children or other relatives.  If a conveyance of out-of-state property is contemplated, be sure to the get advice of a real estate or estate planning attorney who practices in the state in which the property is located.  Real estate conveyance laws and practices vary greatly from state to state (and sometimes county to county).  A deed drafted using the format and language used in Massachusetts may not effectively convey property in another state, or may have unintended consequences.  An erroneous deed will create title issues that can have ramifications long after you have passed away, which can be costly and time consuming to correct. Finally, some states impose transfer taxes on certain conveyances that require additional filings. These are just examples why it is important to get the advice of a local attorney when doing any type of conveyance of your out-of-state property.
2. Two probate proceedings are NOT twice the fun. If you own out-of-state property in your individual name at your death, a probate proceeding will be required in the state where the property is located in order to transfer title to your heirs.  With probate comes the cost and delays associated with it. Above and beyond the additional cost is the difficulty of managing a legal proceeding in another state.  This can be avoided with careful planning.  Speak to your estate planning attorney about probate avoidance options available to meet your goals for the particular property.
3. Don’t Forget to Consider the Estate Tax.  Just as each state has its own laws governing real estate, different states have different state estate tax laws.  Some states (like Florida) do not impose an estate tax on residents who own real estate in their state.  Other states, like Massachusetts, require non-residents who own real estate in Massachusetts to file an estate tax return and pay estate tax to the Commonwealth based on the value of the real estate located in Massachusetts.  When planning, it is important to understand the estate tax implications of owning property in another state and to take that into account in the planning process.
4. Be Careful About Changing your Domicile – Many people who own property in another state consider changing their domicile to that state.  There can be estate and income tax benefits to changing your domicile, however it is not as simple as packing the moving truck and filling out a change of address card.  Your residence for tax purposes is determined both by where you are physically located and where you intend to reside.  Evidence includes such factors as voter and automobile registration, membership in clubs and religious groups, the address on your bank and credit card statements, in addition to where you spend your time.  A state like Massachusetts, which has both an estate and income tax, can be aggressive in its pursuit of taxpayers who claim to reside in another state but maintain ties to Massachusetts (such as ownership of real estate or a business interest).  If you are considering changing your residence, seek expert advice about the steps you need to take, and then follow that advice.
5. Be Realistic.  When estate planning involves out-of-state property, be realistic.  Will your children continue to use the property after your lifetime or will it be a costly burden for them?  Maintaining property in another state as well as finding the time to visit can be difficult.  If your out-of-state real estate is a special property you hope your family will use for generations, take the time to plan for it in a way that the property can be passed to your heirs in a way that minimizes taxes and provides a framework to manage the property going forward.  If it is a property you enjoy but your heirs will not or cannot, consider whether it may be appropriate to direct that the property be sold at your death, or sell it prior to death to minimize the additional cost and effort involved in dealing with such a property after your lifetime.

Along with the enjoyment a property in another state can provide comes the need to plan for that property.  Take the time to consider these unique planning issues as they relate to your particular situation and address them in a thoughtful way with the advice and assistance of an experienced estate planning attorney.

Attorney Maria C. Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information, visit www.ssbllc.com or call (781) 461-1020.

October 2013