Out-of-state properties and California trusts.

Posted by on Jul 9, 2013

Out-of-state properties and California trusts.

For those of you who have done trust-based estate plans with me, you know that when it comes to your California real estate, I help you put those properties into your trust. And that if you own out-of-state real property, I advise you to seek out someone in that state to help you create a state-specific deed to re-title that property in your name as trustee of your California trust.

I do not know how many people with out-of-state real property follow through on getting those properties retitled in their names as trustees of their trust.

Jack and Josie had a trust together here in California. In their names as trustees, they held title to their Oakland home. Josie had inherited fractional interests in 16 small parcels of land in North Dakota. Her grandmother had left these properties to her and eight cousins, so that no one cousin owned a single property; they were all on title together on each parcel. Whew! That’s a paperwork headache, to say the least.

Years had passed since Josie and her cousins had inherited these parcels, and no one had investigated whether they were worth much or whether there were any potential buyers for them. They were just vacant tracts sitting fallow under the big blue sky.

Josie never had any of her interests retitled in her name as trustee of her trust. Jack periodically bugged her about this, reminding her that she needed to either sell out her interests or get someone in North Dakota to retitle Josie’s interests.

Then Josie died suddenly of a heart attack. Jack, as surviving spouse, had an easy time administering Josie’s estate because they had correctly “funded” their trust with their home and financial assets.

There was only one problem and that was the fractional interests in those out-of-state properties. About two years after Josie’s death, the cousins decided they wanted to sell the properties. But, how could they sign off on each parcel when one of the owners was now deceased?

Because Josie had never had her name taken off title of these properties, nor had she had her interests retitled in her name as trustee, there needed to be a probate proceeding in North Dakota. Who would be named as Administrator? That lovely task would fall to Jack, who wanted nothing to do with the matter, though he agreed to work with the out-of-state attorney to work through the bureaucratic process. Jack was appointed Administrator of Josie’s estate, solely for the purpose of selling Josie’s interests in the properties.

It was not a huge ordeal, but it was something Jack certainly could have done without, especially while he was still grieving the loss of his wife. And, he was irked that it could have been avoided.

Parents and grandparents do their heirs no favor when they leave property in such a way that there are multiple owners on multiple properties. Here it would have been better to leave eight parcels, in whole, to eight beneficiaries. And, over time, it would have been better if Josie and her cousins, who really had no interest in these far-away properties, to sell them to someone interested in them. And, if sale weren’t a choice, then Josie should have made sure to fully “fund” her and Jack’s trust by having an attorney or a property manager in that other state prepare a deed correct under that state’s laws, to retitle Josie’s interest in her name as trustee. Then Jack, as surviving spouse-trustee, could have sold Josie’s interests to new buyers without having to have gone through a probate proceeding.

That would have made Jack’s life as a recent widower much simpler.

If you have a trust as a California resident and you own real property in another state, you need to make sure that the out-of-state property is “funded” into your trust.