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Insufficient Estate Planning

© Susan M. Weschler

Most of us are aware of the disadvantages of not having a will or estate plan in place. A number of estate planning pitfalls can also occur with insufficient estate planning for someone who already has a will or is thinking of amending his current will.

Ancillary Probate

When you set up a will, it normally only disposes of the personal property and the real property that is located in the decedent’s state of residence, (known as domicile). Real property (real estate) that is located in different state than where the decedent had his permanent residence, can’t be disposed of by the will, without the property being subject to a separate probate proceeding, known as ancillary probate.

For example, John’s legal residence is New York. In addition to owning a home and personal property in New York, he owns a condo in Florida. His will provisions provide for disposing the New York assets, but if it tries to dispose of the Florida condo with this will, this situation will set up an ancillary probate procedure. John’s will in effect, has a double probate situation-the first in New York which was his residence, and the second in Florida where his condo was located.

It’s important to note that writing a provision in the will to try to dispose of this property to avoid ancillary probate would have had no effect.

If John wants to avoid an ancillary probate procedure for the Florida condo, a better planning tool would be to place the property in a trust. In order to avoid probate, the trust must be funded to accomplish its objective, since only assets transferred to the trust will avoid probate. To establish a funded trust, the trust property (the condo) must be designated and then transferred to the trust. Where real estate is transferred to the trust, a copy of the deed is attached to the trust agreement. This deed contains a full legal description of the property, and correctly identifies it as the asset that has been transferred.

Some important points to remember when transferring real estate to a trust:

· You may require a new title insurance policy in the name of the trust to retain the coverage. Title insurance protects you against claims that you don’t own the property. Whenever there is a transfer of title, the title company may require that the new owner purchase a new policy.

· The liability and fire insurance policies will need to be properly amended to show the name of the new owner-the trust.

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