Advantage of Living Trust Upon Death of Grantor (Con’t)

This post explores the numerous income tax advantages of having a Living Trust upon the death of the grantor. For more information on this topic, see the ‘Advantages of a Living Trust Upon Death of Grantor).

Avoidance of Ancillary Administration—

If an individual owns real estate in several different states and dies with these assets held in his or her own name, it will be necessary to open an ancillary administration in the foreign jurisdiction.  This could occur, for example, if an individual owned a home in both Kansas City and in Colorado titled in his name only.  Assuming that Missouri is the domicile of the individual, it will be necessary to open a main probate estate in Missouri and an ancillary administration in Colorado upon his death.

“Although a decedent’s movables typically are subject to devolution and administration under the law of the state of the decedent’s domicile at death, the decedent’s immovable assets (realty) must be administered where located, which may necessitate an ancillary administration.” A. James Casner and Jeffrey N. Pennell, Estate Planning §2.7.2 (6th Ed, 1995) (citing Restatement (Second) of Conflict of Laws §§260, 236 (1971).

In some states, the domiciliary fiduciary (i.e., the personal representative appointed to administer the estate of the decedent where the decedent was domiciled (permanent residence) at the time of his or her death), may have limited power to act in another state and may be precluded from acting if it is necessary to open an ancillary administration in another state.  See, e.g., MO Rev. Stat. §473.675(2000).

The mere fact of opening an ancillary probate estate in another state will incur additional probate costs but if it is necessary to appoint another personal representative for the ancillary administration, inefficiencies in administration are likely to occur.  “The use of a revocable living trust can avoid ancillary administration of foreign assets, as well as inefficiencies of administration, provided the domiciliary personal representative of the estate and trustee are the same.”  See Hood, et. al., supra, at 8-7.

In addition, the extra probate fees that would have been incurred with the opening of an ancillary probate estate can be avoided by the use of the revocable living trust.

To achieve this goal of avoiding ancillary administration it is absolutely essential that the real estate in the foreign jurisdiction be titled in the name of the trustee of the revocable living trust during the grantor’s lifetime, or, in the alternative and if permissible under the laws of the foreign jurisdiction, a beneficiary deed must be executed by the grantor transferring the real estate to the revocable living trust upon the grantor’s death.  The beneficiary deed has become a popular non-probate transfer device.  If available in the state where the real estate is located, the beneficiary deed may be an attractive alternative to titling the asset in the name of the trustee of the revocable living trust especially if the grantor is married and desires to achieve some limited asset protection by titling the real estate as tenants by the entirety with his spouse but providing, through the use of a beneficiary deed, that the real estate will be transferred to the survivor’s revocable living trust.

Privacy—

Shortly after Michael Jackson’s death, his alleged will surfaced and was immediately placed on the internet.  Not surprisingly, he named a guardian for his children and then provided that his assets, after payment of debts, etc, are to be distributed to the trustee of his revocable living trust.  In effect this will is what estate planning attorneys refer to as a classic pour over will.

A pour over will only operates on assets titled in the decedent’s name only and if most of the assets are already in the trust, such a will will have little impact. In fact, estate planners often find it unnecessary to probate a pour over will because all of the decedent’s assets are already in the trust or, if not, made payable to the trust through non-probate transfer on death designations.

Do you have any questions about your future? Our estate planning attorneys can help you explore the best options. To schedule an appointment, contact our office through the form below or call 816-561-5000.

 *This post was originally published on October 2, 2011