Why multistate planning is different from single‑state planning
Owning assets in multiple states or moving between states creates legal and tax friction that a single‑state plan won’t resolve. Each state has its own rules for probate, domicile (residency), property law and — in some cases — estate or inheritance taxes. Absent deliberate planning you can face multiple probates (ancillary probates), conflicting residency claims, higher administrative costs, and surprise state tax bills.
In my work as a CPA and CFP®, I repeatedly see two big drivers of complexity: (1) where you are legally domiciled for tax and probate purposes, and (2) how each piece of property is titled. Addressing those two items early reduces friction for heirs and can save real dollars.
Sources: IRS guidance on estate tax procedures and the Consumer Financial Protection Bureau’s high‑level estate planning resources are good starting points for federal rules and consumer protections (IRS, CFPB).
Residency and domicile: how states decide who is a resident
States use different tests to determine domicile (your legal residence), and that designation affects income tax, estate administration, and sometimes estate or inheritance taxes. Common factors states weigh include:
- Where you spend the most time (physical presence).
- Where you keep your primary home and personal property.
- Where you register to vote and hold a driver’s license.
- Where you file state income tax returns (if applicable).
- Statements of intent such as a declaration of domicile or voter registration.
Practical tip: keep consistent records (mailing address, voter registration, driver’s license, tax filings) if you intend to change domicile. In disputes after death, inconsistent indicators are a frequent source of contested residency claims.
Real estate and ancillary probate: why location matters
Real property (land and buildings) is subject to probate in the state where the property is located. If you die owning land in State A but live in State B, your estate may need a full probate in your home state and an ancillary probate in the state where the real estate sits. Ancillary probates add time and legal fees.
Common solutions to reduce ancillary probate:
- Revocable living trusts: placing real property in a revocable trust avoids ancillary probate because the trust holds the title and the successor trustee transfers property outside probate.
- Joint ownership with rights of survivorship or tenancy by the entirety (for spouses): these forms of title automatically pass to the surviving owner in many states, but they have tax and creditor implications — evaluate before relying on them.
- Beneficiary deeds (where available): some states allow a transfer‑on‑death deed for real estate, which passes property directly to a named beneficiary without probate.
Note: the availability and legal effect of beneficiary deeds, tenancy by the entirety and other title options vary by state; check local law.
State estate and inheritance taxes vs federal estate tax
There are three separate tax concepts to understand:
- Federal estate tax: levied on the value of a deceased person’s estate above the federal exemption threshold. Federal rules and the filing process are administered by the IRS (see IRS estate tax resources).
- State estate tax: some states impose their own estate tax with thresholds and rates that differ from federal law.
- Inheritance tax: a few states tax the value received by beneficiaries (not the estate); the tax rate and exemptions vary depending on the beneficiary’s relationship to the decedent.
Because state rules differ, owning property in a state with an estate or inheritance tax can expose your heirs to state tax even if you live elsewhere. Do not assume your federal estate tax planning fully covers state obligations.
Titling, beneficiary designations and why they matter
How an asset is owned usually determines whether it passes by title or by will:
- Assets that pass by beneficiary designation (life insurance, IRAs, workplace retirement plans) move outside probate when beneficiary forms are current and valid.
- Jointly titled assets can pass to co‑owners by operation of law; however, joint titles can create gift or tax issues and expose the asset to creditors of the co‑owner.
- Trusts own assets by title; properly funded trusts avoid probate for the transferred assets.
Action item: maintain up‑to‑date beneficiary forms and periodically confirm titles match your estate objectives. Mis‑matched beneficiary designations are a common cause of unintended results.
Practical planning checklist for multistate situations
- Inventory your assets by state: list real estate, titled vehicles, vacation homes, brokerage accounts and retirement accounts, and note the state where each item is located or domiciled.
- Confirm domicile: document the state you intend as your legal residence (voter registration, driver’s license, tax filings, and a written declaration where available).
- Review titling: identify assets that will trigger ancillary probate and consider moving them into a trust, changing title, or using a state‑recognized beneficiary deed.
- Check beneficiary forms: ensure IRA, 401(k), annuity and life insurance beneficiaries are current and coordinate with trust and will provisions.
- Evaluate state tax exposure: determine whether any states where you own property impose estate or inheritance tax; if they do, plan strategies to minimize state tax exposure.
- Coordinate documents: use consistent wills, pour‑over wills (if you use a trust), powers of attorney and advance health directives that reflect your dwelling and property locations.
- Schedule periodic reviews: revisit plans after moves, major gifts, marriage, divorce or significant asset purchases.
Common mistakes to avoid
- Relying solely on a single will to avoid ancillary probate for out‑of‑state real property.
- Failing to update beneficiary designations after life changes (marriage, divorce, births, deaths).
- Ignoring differences between domicile and mere physical presence — a weekend home can create tax and probate obligations in another state.
- Using joint ownership to avoid probate without weighing income tax, gift tax and creditor consequences.
Sample scenarios (realistic, anonymized)
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A retiree who moved to Florida (no state income tax) but kept a rental condo in New York learned an ancillary probate and New York estate tax rules could apply to that condo. We moved the unit into a revocable trust to avoid ancillary probate while preserving control during life.
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A family owned a lake house titled as joint tenants. After one spouse died, the surviving spouse unexpectedly faced creditor claims tied to the deceased spouse. Retitling into a trust earlier would have preserved privacy and separated creditor exposure.
When to use trusts vs wills for multistate issues
- Use a revocable living trust when you want to avoid ancillary probate for out‑of‑state real property and keep transfer out of court while retaining control during life.
- Use pour‑over wills to capture assets inadvertently left out of a trust and to name guardians for minor children.
- Consult both an estate planning attorney licensed in the states that matter and a tax advisor to structure the plan — trusts solve transfer and privacy concerns, but tax exposure can be state specific.
Internal resources you may find useful:
- Estate Planning for Owners of Vacation Property — practical tips for second homes and out‑of‑state real estate: https://finhelp.io/glossary/estate-planning-for-owners-of-vacation-property/
- Estate Planning Checkup: Documents to Review Every Five Years — a list of essential documents and a suggested review cadence: https://finhelp.io/glossary/estate-planning-checkup-documents-to-review-every-five-years/
- Estate Planning for Multigenerational Homeownership — strategies when a family owns homes across generations and states: https://finhelp.io/glossary/estate-planning-for-multigenerational-homeownership/
Authoritative resources and further reading
- IRS, Estate Tax: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-about-estate-tax
- Consumer Financial Protection Bureau, Estate Planning Overview: https://www.consumerfinance.gov/consumer-tools/estate-planning/
Professional tips from my practice
- Document your intent when you change residence. A signed declaration of domicile and consistent state filings reduce the risk of competing claims after death.
- Fund trusts proactively. Moving titled assets into a trust is more effective during life than trying to re‑title in the middle of an estate administration.
- Use local counsel. Estate law is state‑specific. Work with an estate attorney licensed in the state where each significant asset sits.
Frequently asked legal and tax concerns (short answers)
- Do I need a separate will for each state? No—usually one properly drafted will is legally effective nationwide, but ancillary probate may still be required for out‑of‑state real property. Separate state‑specific documents (like beneficiary deeds) can simplify local transfers.
- Will a revocable trust eliminate state estate taxes? No. Trusts help avoid probate but do not change taxable ownership for estate tax purposes in many cases; tax results depend on the trust structure and state rules.
Final notes and disclaimer
Multistate estate planning is about aligning domicile, titles, trusts and tax strategy to reduce administration, legal fees and potential state taxes. The examples and recommendations here reflect common approaches I use as a CPA and CFP®; they do not substitute for personalized legal or tax advice.
This article is educational and not legal advice. For state‑specific estate or tax planning, consult a qualified estate planning attorney licensed in the state(s) involved and a tax advisor familiar with state and federal rules.
