John Stege, Esq. 303-945-4606
What Is Ancillary Probate and How Do I Avoid It?
The advantages of a Revocable Living Trust!
If you or your spouse dies and you own real property, you will very probably have to file an action in the district or probate court in the state where the property is located. A probate proceeding is a court process used to transfer your property to family members and loved ones named in your Will when you pass away.
What is Ancillary Probate?: Typically, wherever you own real property, for example, a vacation home for instance, the law of that state is located requires you to file a probate to transfer that property to your heirs. If you own property in more than 1 state it's worse! Generally, you must open probates in BOTH states and hire lawyers to handle them. In some states like California this can be surprisingly expensive, since the lawyer fees in such states are very high. Having 2 probate actions going in 2 different states is “ancillary probate.”
Most people try to avoid this situation because it can involve all the costs associated with probating an estate: court fees, accounting fees, and attorney's fees – times two! It also means a long waiting period before the property is transferred and the lack of privacy arising from public court records.
Using a Revocable Trust to Avoid Probate: However, probate is not required for any property that you've placed in a Revocable Living Trust. By transferring the property into a revocable trust, you no longer own it directly, so on your death or that of your spouse, the trust will be managed by your trustee. That can be you, your spouse, a family member or a professional trustee. Any property you put in the trust (cash, art, real property, personal property, etc.) becomes property of the Trust, and can be managed by the Trustee upon your death. You can name a family member like a child to act as “successor trustee” and handle the trust assets. That means your child as trustee could make payments or handle investments or take any other financial action you could take (if you trust them to act properly as your agent!).
No Tax Effect: Because the trust is revocable, as far as the IRS is concerned as long as you're alive and well and serving as its trustee, you continue to own the trust's assets for tax purposes. So, the revocable trust is a tax nothing. The trust's tax identification number is your own Social Security number because you still technically own all the assets the trust contains. There zero tax effect! When you die, the Trust can pass directly to your surviving spouse. If you have no spouse, at that point the trust becomes irrevocable and must start paying taxes on any income of the trust, unless all the assets are distributed within 1 year.
If You Become Mentally Incapacitated
If you become mentally incapacitated, your successor trustee – the individual you've named to step in and assume control of the trust for you if you're no longer capable of managing your own affairs. This also avoids many problems of conservatorship or guardianship proceedings, if you don't have active powers of attorney drafted.
There are many aspects to estate planning, and your needs may vary. If you have any questions, please call me.
Thanks, John Stege
John Stege, Attorney at Law has been practicing law in Denver for over 30 years in the areas of estate planning, wills and trusts, real estate, partnerships and securities law.
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