Last updated on October 31st, 2018
Out of State Property
Owning out of state property is not the same as owning foreign property. Out of state property only considers the assets you own outside of your domiciliary, or the state in which you live.
You are able to own many properties in any states that you choose. However, you want to consider how that property is included in your estate plan.
Seek Legal Advice
While not required, it is important to seek legal counsel while you are planning your estate in order to avoid preventable errors, such as overlooking property. However, planning your estate to include out of state property is complex, and speaking with a lawyer is crucial.
A lawyer in your domicile is able to establish or amend your estate plan to consider your out of state property. Meanwhile, you are also recommended to consult with a lawyer who has jurisdiction of your property’s domicile. In other words, consult with a lawyer who practices in the state and region of your property.
Consulting with a lawyer who practices in the area of your property’s location allows you to consider that state’s tax, probate, and inheritance proceedings.
An estate that contains properties in multiple states are subject to the probate proceedings of each property’s state of location.
For example, a Virginia estate that contains property in Vermont will have two probate proceedings. The first will consider only the Virginia estate, and the second will consider the out of state property. The secondary probate follows the proceedings outlined by that state, rather than the proceedings of Virginia probate.
When planning your estate, you must consider the cost of two probate proceedings against your estate’s value. You may find that your estate would benefit from selling your out of state property, rather than maintaining the cost of keeping it. Property that your beneficiaries will not use, reside in, or otherwise need is able to be sold in order to avoid multiple probates.
Consider Changing Domiciles
While it might be beneficial to change your domicile in order to save on taxes, the Internal Revenue Service (IRS) has a specific definition of what residence qualifies as your domicile.
Determination of domicile considers:
- Registrations (vehicle, voter, clubs, religious groups, schools, etc.)
- Given address on credit cards or other billing statements
- Where you spend most of your time throughout the year
Changing your domicile is a process that must be carefully considered, and even more carefully changed. The IRS does not allow you to choose your domicile yourself – you must prove that you have physically changed domiciles.
If you intend to change your domicile, you must prove you reside in your “new” domicile for most of the year. While you are able to own property in varying states, you are only able to consider one of those your permanent domiciliary residence.
Varying State Taxes
While Virginia does not carry an estate tax, other states may impose an estate tax for property within its domicile. Therefore, you must consider the tax laws of the state that your property is located in prior to establishing your estate plan for that property.
The fees of probate vary, and once your estate passes through the state’s probate process, it is subject to assuming the outstanding estate tax using the assets that remain in your estate. You must consider the state’s estate tax rate, as well as your estate’s overall value. Therefore, you are able to decide whether or not it is more beneficial to sell your out of state property.
If you choose to keep out of state property, you must evaluate the cost of out of state estate taxes. Consulting with an attorney assists in all state tax and probate considerations.
Including out of state property in your estate plan is tricky unless you consult a lawyer in the process. You need to ensure that you are covering all of your property and assets, while avoiding contradicting documents.
Schedule a consultation with our estate planning attorney to establish your estate plan, and consider your out of state property options.