If you own real property outside of your state of residence when you die, you will have to conduct an ancillary probate in that state to transfer title to the property to your beneficiaries. In some states, like Texas, ancillary probate is a simple process of recording copies of the out of state probate in the state in which the real property is located. In others, the process is more complicated and will require hiring an attorney in the state and prosecuting a court proceeding.
One way to avoid ancillary probate is to form a limited liability company (LLC) or limited partnership (LP) to own the out of state property. If the client does this then he will no longer own real estate out of state. Instead, he or she will own an interest in an entity that owns real estate in that state. Accordingly, there is no longer the need to prosecute an ancillary probate. The entity can be formed in the client’s state of residence, the state the property is located or some other jurisdiction. It doesn’t matter. Use of the LLC or LP also adds a layer of asset protection for the client.
Note that using an LLC or LP doesn’t mean the client will not owe property taxes or income taxes (if a rental property) in the state in which the property is located.
