facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

Military Finances 401: Ancillary Probate. What Is It?

Estate Planning

When you check out from the planet, you will leave behind an estate. If you have a will-based estate plan, that estate will go through probate. Probate is the legal process of paying your creditors and disposing of your assets as directed in your will (or by state law if you don’t have a will). Probate is not the most pleasant thing in the world. In fact, it is a pain in the butt and it costs time and money. And here is the kicker, if you’re an active or retired senior military officer or NCO, there is more than a decent chance that you have more than one probate estate. What? It has to do with rental real estate or vacation homes and it is called ancillary probate.

What is Ancillary Probate?

Ancillary probate is a process that occurs in addition to the primary probate process (the one in your state of residence). You’re likely to be subject to ancillary probate if you own real estate in a state other than your state of residence. This could be due to owning a rental property or a vacation home in a different state. The bottom line is that the probate process on all your assets except real property will occur in you state of residence and your real estate will go through probate in the state where the property is located. This isn’t a great situation.

How Do I Avoid Ancillary Probate?

The simplest answer to the question is “Don’t own real estate in a different state.” I didn’t say, “Sell it,” I said, “Don’t own it.” You can accomplish this a couple of different ways. The most common is to place it inside a revocable living trust. With this arrangement, you maintain control of the asset, if you so choose. It also doesn’t affect your income taxes. It does however change ownership of the property to the trust, so the trust document controls its disposition upon your passing and therefore the probate process does not apply. In fact, owning real estate in a different state is one of the prime reasons to set up a trust-based estate plan.

Another option that would involve “not owning” the property would be to transfer it to an LLC (assuming a rental property) which you do own. While the LLC would go through probate, it should go through probate along with the rest of your property in the state where you are a resident. Be careful if you have a mortgage on the property, as transferring the property to an LLC  will likely be considered a transfer of ownership and accelerate the loan (it will become due immediately).

If neither of these options is appealing to you, in some states you can title real estate as Transfer on Death (TOD). In this case, the property will transfer by “contract” to whoever you designate and since your will does not control it, it will avoid probate. You want to watch out with this method too and make sure that your will and your TOD plan support each other.

Active and Retired Military Members Need to Plan Their Estate Too

Most of us went through a good portion of our military career with an “I Love You” will. Under current tax law it is tempting to ignore estate planning because for most of us estate taxes won’t apply. But, there are so many other things a complete estate and financial plan will cover. If you’re military, you have even more things to consider and integrate. We think you should work with a financial planner that deals with military issues each and every day.


If you found this article useful, you might like the following blog posts:

Military Finances 301: Avoid These Blunders When Setting up a Living Trust


Military Finances 101: Inheritance and Estate Taxes. Do You Know the Difference?


What Military Officers Need to Know About TSP and Estate Planning




Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.