Why multi-state real estate creates special risks

Owning real estate in more than one state introduces legal, administrative, and tax friction that doesn’t exist when all assets sit under a single state’s laws. When an owner dies, each state that contains real property usually requires a local proceeding—often called ancillary probate or ancillary administration—before title can be transferred or a buyer can close. That duplication can mean delays, attorney fees, court costs, and confusion for heirs.

In my 15 years as a financial planner working with families who own homes, rentals, and business property across state lines, I’ve seen three recurring pain points: (1) ancillary probate timelines that block access to income-producing assets, (2) unexpected state-level estate or inheritance taxes, and (3) liability exposure when local ownership structures aren’t aligned with protection goals. Early, practical planning stops these problems before they start.

Sources: IRS (federal estate tax basics) and Consumer Financial Protection Bureau estate planning resources provide high-level rules; but application depends on each state’s probate code and tax rules (see IRS: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax; CFPB: https://www.consumerfinance.gov/consumer-tools/estate-planning/).

Core concepts you should know

  • Ancillary probate: A secondary probate in a state where the decedent owned real property but was not domiciled. It’s usually shorter than a primary probate but still costly and time-consuming.
  • Titling and beneficiary designations: How a property is titled (individual, joint tenancy, tenancy in common, LLC, trust, or TOD deed) determines whether it goes through probate and who controls it after death.
  • Trust funding: A trust only avoids probate if the property is properly transferred (“funded”) into the trust during the owner’s lifetime.
  • State estate/inheritance taxes: Some states impose their own estate or inheritance tax thresholds that differ from the federal exemption; this can change whether planning to reduce taxes is necessary.

See FinHelp guide: Estate Plan Checklist for Multi-State Property Owners for a practical worksheet.

Practical strategies that work

Below are tested approaches I use with clients. No single strategy fits everyone; use these as building blocks you or an advisor can tailor to your situation.

  1. Revocable living trust (RLT) and proper funding
  • Why it helps: A properly funded RLT holds title to real estate and avoids probate in the state where the trust is recognized. That can eliminate ancillary probates if the trust is the owner of out-of-state properties.
  • Key steps: Draft the trust to be accepted in your home state and execute deeds transferring each property into the trust. Confirm the trust’s funding with a local real-estate attorney because deed language and recording practices vary by state.
  • Caution: An RLT does not shield assets from creditors or estate tax by itself; it’s primarily a probate-avoidance tool.
  1. Transfer-on-death (TOD) deeds and beneficiary deeds
  • Why it helps: Several states allow TOD deeds for real estate that pass title automatically to a named beneficiary without probate. This is simple and low-cost where available.
  • Action: Check each property’s state law (not all states permit TOD deeds). If available, record a TOD deed and confirm whether it interacts with a trust or will.
  1. Titling via joint ownership
  • Why it helps: Joint tenancy with right of survivorship can move property to a co-owner immediately on death, bypassing probate.
  • Trade-offs: It gives the co-owner survivorship rights while you’re alive and may cause gift-tax or creditor exposure. Use carefully and document intent.
  1. Use of limited liability companies (LLCs)
  • Why it helps: Placing a property into a state-registered LLC clarifies management, limits personal liability, and allows ownership interests (LLC membership) to be assigned or transferred without re-titling each deed.
  • Practical tip: Use separate, state-registered LLCs for properties in different states (or a series LLC if permitted) and hold membership interests in a trust. See our deeper discussion: Using LLCs and Trusts Together to Limit Personal Liability.
  1. Irrevocable trusts and life estate deeds for tax or creditor goals
  • Why it helps: Irrevocable structures can remove property from your taxable estate or shield it from future creditors—useful for wealth transfer or asset-protection objectives.
  • Trade-offs: These moves are usually permanent and may limit flexibility. Work with an estate attorney before creating irrevocable vehicles.
  1. Plan for liquidity to pay taxes and local costs
  • Why it helps: Heirs often need cash to pay closing costs, property taxes, estate administration fees, and any estate taxes. A funding plan—life insurance held in an irrevocable life insurance trust (ILIT) or a designated liquid asset—keeps properties from being forced into sale.
  • See: Funding Estate Taxes: Practical Options When Liquidity Is Tight.

Step-by-step checklist for owners of multi-state real estate

  1. Inventory properties and record details: address, county, deed type, mortgage status, and whether there are tenants.
  2. Confirm each state’s probate and TOD-deed laws.
  3. Check for state-level estate or inheritance taxes and thresholds.
  4. Decide the primary tools (trusts, TOD deeds, LLCs, joint ownership) and draft documents with local counsel.
  5. Fund trusts and record any necessary deeds with county recorder offices.
  6. Update beneficiary designations, operating agreements, and successor manager names.
  7. Build liquidity for taxes and short-term costs (insurance, cash reserve, life insurance).
  8. Review plans every 2–3 years or after major life events or state-law changes.

Common mistakes and how to avoid them

  • “I have a will so I’m done.” A will usually triggers probate in each state where real estate is located. Avoid relying on a will alone for multi-state holdings.
  • Unfunded trusts. People create trusts but never transfer deeded title—trusts only avoid probate when assets are properly retitled.
  • Ignoring state taxes. Some states impose estate or inheritance taxes with lower thresholds than federal limits; failing to check can surprise heirs with a tax bill.
  • Overlooking tenant-occupied or mortgaged properties. Lenders and leases can constrain transfer options and require lender notification or payoff on death.

Real-world examples (anonymized)

  • Client A owned a vacation home in Maine and primary residence in Connecticut. We used a TOD deed in Maine (available in that state) and retitled the Connecticut home into a trust. The family avoided ancillary probate in Maine and had immediate access to the vacation home.
  • Client B held rental properties in three states. We formed state-specific LLCs, then had a revocable trust hold the LLC membership interests. This reduced probate steps and clarified management for heirs while limiting personal liability.

Who should act now

  • Owners with properties in two or more states.
  • Small-business owners with commercial real estate across state lines.
  • Executors and trustees who may need to administer out-of-state assets.
    If you fit any of the above, gather property deeds and a recent appraisal and schedule a consultation with an estate attorney in the state where each property sits.

Frequently asked questions

Q: Will a trust always avoid ancillary probate in every state?
A: Only if the property is retitled into the trust and the state recognizes the trust arrangement. Some deeds and recording practices are state-specific, so confirm funding with local counsel.

Q: How much does ancillary probate typically cost and how long does it take?
A: Costs and timing vary widely by state and estate complexity. Expect smaller ancillary probates to be shorter than a full probate but still to take weeks to months and incur attorney fees and filing costs.

Q: Can I move a property into an LLC without triggering taxes or a mortgage acceleration?
A: Transfers to an LLC may trigger lender due-on-sale clauses or require mortgage lender approval. Tax consequences depend on the transfer type—consult an attorney and tax advisor first.

Practical next steps (recommended)

  1. Do an inventory and map each property to its state rules.
  2. Meet with a local real estate/estate attorney for each state with property.
  3. Fund trusts and record deeds or create TOD deeds where available.
  4. Consider LLC structures for investment properties and hold membership interests in a trust for easier transfer.

Professional disclaimer

This article is educational and not a substitute for personalized legal or tax advice. Laws and interpretations change; consult a licensed estate planning attorney and tax advisor in each relevant state before making transactions.

Authoritative sources

If you’d like a tailored checklist or sample deed language for a specific state, consult a licensed attorney in that jurisdiction.