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Any one possessed of property is usually aware of the pitfalls of not having an estate plan or a will in place. Nevertheless, most are unaware of the drawbacks of insufficient estate planning or certain conditions that give rise to pitfalls even when they have made a will. One position one must know relates to real estate located outside the state of domicile. Law does not permit transfer of property located in a state other than the state of domicile i.e. the state of permanent residence of the descendant with through a will without ancillary probate which is an entirely separate probate proceeding. Therefore a will to disposing real property, part of which is located in a state other than the state of domicile, will entail two separate probate proceeding; one in the state of permanent residence for real property located there and another for real property located in another state. Any provision in the will to dispose all real property even to a single person will not avoid ancillary probate. One can imagine the position where a descendant has property located in four different states. It is possible to avoid ancillary probate by transferring the property to a trust. For example, A owns a condo in Virginia apart from real estate in Maine. Maine is his state of domicile/permanent residence. If he makes a will disposing all his property to his heirs through the will, property transfer would entail two separate probate proceedings; one in courts at Maine and another in Virginia courts. If A establishes a funded trust and transfers the Virginia property to the trust, he can avoid the ancillary probate. He can name persons of his choice as beneficiaries in the trust deed. A copy of his Virginia property would need to be attached to the deed of trust, so that the exact description to identify the designated/transferred property is available. There are many points to remember real property is transferred to a trust. The issue related to a new title insurance policy is of utmost importance. Title insurance offers protection from claims against your ownership of the property in question. When title is transferred to the trust, which becomes the new owner of the property and exists as an entity separate from you, the insurance company may require the trust to purchase a new policy. The fire insurance and liability policies will also need to be suitably amended to reflect the name of the trust as the new owner. Depending on the type of trust, an environmental inspection may be required. Certain conditions with respect to periodical reporting may also have to be met. Other factors like recording fees for the deed of transfer, real estate transfer taxes, mortgage-recording fees and other taxes etc. need to be taken into account. It would also be prudent to find out if the transfer of the property to a trust property tax reassessment implications. An undervalued property may entail paying a higher property tax after reassessment. If the property were under a mortgage, the mortgage document would need to be reviewed to find out if the note requires repayment to the lender. Other possible tax consequences of making the transfer need to be discussed with your accountant. To retain personal use of the property, there must be a formal lease document executed by the trust in your favor, which will legally entitle you to continue using the premises. But you must pay fair market rental to the trust This may not be necessary in case of a revocable living trust created for your own benefit where tax provisions continue to treat you as the property owner.
Article Source: http://www.financemanual.com
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