Estate planning considerations for out-of-state property.

• Author: Lannon, Patrick J.
• Position: Real Property, Probate and Trust Law

It is not uncommon for Florida residents to own real and tangible personal property, directly or indirectly, located in one or more of the other 49 United States. (1) It is somewhat less common for this property to be integrated into a comprehensive estate plan that takes into account the additional probate and state estate and inheritance tax issues that may be caused by the ownership. Although the issues raised by such ownership and the solutions available will vary greatly from situation to situation, this article briefly covers some of the more important estate planning considerations to keep in mind when dealing with ownership of non-Florida property by a Florida-based client.

Planning Concern #1: Domicile Planning

A client who reports a non-Florida "vacation home" may, in fact, be a domiciliary of another state. Domicile in another state may be less advantageous than a Florida domicile for estate or inheritance tax purposes. (2) Risks of an ambiguous domicile include competing probate proceedings after death (3) and state income and estate taxation claims made by the non-Florida jurisdiction. (4)

If domicile is not perfectly clear, steps may be taken to clarify domicile. (5) Since domicile is a matter of intent, however, some ambiguity may remain in spite of the client's best efforts. In these cases, it may be appropriate to plan flexibly to allow for the possibility that some interested party (such as a taxing authority) may successfully prove non-Florida domicile.

Over time, the domicile ambiguity is often resolved, and the planning documents can then be updated.

Planning Concern #2: Avoidance of Ancillary Probate

Most clients readily understand that probate avoidance is a good thing. This is doubly true with out-of-state real and tangible personal property. The standard probate avoidance techniques --revocable trusts, joint with right of survivorship ownership, life estates--will work to avoid ancillary probate as well. In addition, any planning that converts the real and tangible personal property into an intangible asset (such as adding the property to a family limited partnership (FLP) or a limited liability company (LLC)) will also work to avoid ancillary (but not Florida) probate. Steps taken with respect to real property should also include related tangible personal property, or probate may be avoided for the real property, but still required for the tangibles. Some issues to be considered when placing property in an entity are discussed below.

Planning Concern #3: State Estate Tax

We have had a few years to get used to the "decoupling" of state estate taxes from the federal estate tax, (6) but many property owners (and some estate planners) are still shocked to learn that there may be a state estate tax assessed on their out-of-state real property even if the estate escapes federal estate taxation. For example, a $2 million estate may be subject to state estate tax even if the federal exemption is $5 million, and an estate with a full marital deduction for federal purposes may nevertheless face state estate taxation. Of course, not every state assesses a state estate tax, and the exemption for state estate tax purposes is not uniform. Those states that do assess a state estate tax frequently revise their statutes. A Florida estate planner should be prepared to research sufficiently to determine the issues.

Once the issues are...