If you own real property in another state and it is not in your trust, your family will likely face a second probate case in that state. This is called ancillary probate. It means going through the probate process in both Arizona and the state where the property sits. Good planning avoids this problem fully.
What Is Ancillary Probate?
When someone dies owning real estate in a state other than their home state, that state needs its own probate case to transfer the property. Arizona probate handles your Arizona assets. But the other state's probate court must approve the transfer of property there. Each state has its own rules, time frames, and costs.
Ancillary probate adds legal fees, court costs, and months of delay. For families dealing with property in more than one state, the total cost can be large.
How a Trust Solves This
When real property is titled in your living trust, it does not go through probate at all. This is true no matter where the property is. The successor trustee can transfer or sell the property using the trust papers. No court in any state needs to be involved.
This is one of the best reasons to use a trust if you own property in more than one state. A single trust can hold property in Arizona, California, Colorado, or anywhere else. Your family handles it all through the trust. No probate filing needed.
Other Options to Avoid Ancillary Probate
If you do not have a trust, there are other ways to dodge ancillary probate. But they have limits:
- Joint ownership: Adding a co-owner with right of survivorship means the property passes on its own at death. But joint ownership can create gift tax issues, creditor risk, and loss of control while you are alive.
- Transfer-on-death deeds: Some states, including Arizona, allow beneficiary deeds or transfer-on-death deeds. But not every state offers this option. Check the laws in the state where the property is.
- LLC ownership: Holding property in an LLC can bring management under one roof. But it adds red tape and may cause problems with mortgage lenders.
Tax Implications to Consider
Owning property in another state may also create tax issues. Some states charge an estate or inheritance tax that Arizona does not have. If the property is in a state with its own estate tax, your family could owe taxes to that state even though Arizona charges none.
Moving property into a trust does not change your income tax duties while you are alive. But it does make the transfer at death simpler. It may also help your family avoid surprise state-level taxes.
Update Your Estate Plan
If you have bought property in another state since your last estate plan review, update your estate plan now. Make sure the property is titled in your trust or covered by another transfer tool. For more on how trusts protect property in other states, read our guide on funding your trust. One trust, all your property, no extra probate. That is the whole point.