Monday, December 1, 2014

Estate Planning Without Borders

This week my family and I moved back to my hometown of Naperville, Illinois, after seven years in the Air Force.  During that time, I frequently drafted estate plans for military members with property in multiple states.  Today’s post will discuss what happens when people die with property outside their state of residence.  I will use my family’s story as an example:

As an Air Force officer, I lived in three US jurisdictions:  North Dakota, Ohio, and Guam (a US territory in the Western Pacific – see picture above).  In 2010, we purchased a home in Guam, while maintaining Illinois residency, an arrangement that is common in the military.  We loved owning our little slice of paradise in the tropics.  But what would have happened if we had died with some property in Illinois and a house in Guam?

In general, for personal property (bank accounts, investments, personal belongings, etc), a will is probated in the state of residence.  In our case, if we died with an Illinois will, an Illinois court would oversee the disposition of our personal property.  However, when it comes to real property, generally the jurisdiction where the real property is located handles the probate process. 

If we died with just an Illinois will, and no other estate plan in place, our survivors would likely have to go to court in two separate jurisdictions:  Guam, and Illinois, to probate the will.  The real estate would be probated in Guam, and the rest of the estate in Illinois.  This could greatly increase the legal fees to close our estate.  Additionally, it might take a year or more to complete the process.

However, like many couples, my wife and I held title to our Guam house as joint tenants with right of survivorship.  If just one of us died, the other would automatically take ownership of the whole property.  There would be no need to probate our will in Guam, because joint tenancy bypasses entirely the probate process.  Our remaining personal property could be handled through our Illinois will in Illinois probate court.

Unfortunately, joint tenancy is not foolproof.  If my wife and I both died, the joint tenancy would extinguish.  By default, our house would then have to be probated in Guam.  This would put us back in the unfavorable situation of multiple-state probate.

However, there is a fix:  A living trust allows property in multiple states (even real property) to pass entirely outside of the probate court process.   The mechanism is relatively straightforward.  First, we would put all of our property (real and personal) into a living trust, where we remained the trustees and beneficiaries during our lives.  We would name a successor trustee in the document to take over the role of managing our property after our death or incapacity.  Once our attorney drafted the document and we retitled our assets, we would essentially go on living our lives as normal.  When we died or became incapacitated, the successor trustee would automatically take title to the property and distribute it according to our estate plan, largely bypassing the probate process.

A living trust can greatly decrease the length of time it takes to distribute property, and cost much less in the long run than extensive probate.  Talk to an estate planning attorney in your state to see if a living trust would be appropriate for your family. 

Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.  

Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 


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