A lot of people have heard the word “Probate” used but I find that they don't really understand what it is or how it can affect them. Probate, simply put, is the process set up by the legislature in every state that gives the courts guidance in how to transfer and manage the property of a deceased, incapacitated person or a minor. In such circumstances, unless appropriate planning is done in advance, the court will be required to appoint someone with legal capacity to act in the place of the deceased, incapacitated, or minor person. You'll have no say so in whom the court will appoint but you can rest assure it will likely be some family member.
The reality of Probate is that it can have heartbreaking consequences for our loved ones if we don't pay attention to it. More importantly, when a person owns property in more than one state, the possibility for financial damage is unavoidable. I've been taking care of real property investors for several years now and encounter some that come into my office with ten properties or more all in different states and they don't have any estate plan whatsoever to avoid multiple probates. Furthermore, there can be problems while a person is still here but incapacitated and did not create a General Power of Attorney naming someone as their agent to take action while they are incapable of making their own decisions.
The widespread theme of Probate as it relates to the real property investor is any person who holds either real property or mineral and/or oil rights in other states and does not transfer it to their Trust, will have to open a probate in the state where any and all property resides. If for instance you have a person who owned real property in California, not in the name of the trust, and that owner dies in California, and they held mineral rights and/or oil rights in another state, they would have to open a probate in California, open an ancillary probate in the other state, deal with probate in the other state, get it closed and then proceed with the probate in California until closed. You have to reference in the California probate that there was an ancillary probate in another state as well. Very costly and time-consuming proceedings that could have been avoided.
If placing your surviving loved ones in financial peril and having a lived a life of accumulating a bunch of properties all for naught doesn't inspire you to think about planning, then stop going through the headache of making multiple mortgage payments to hold a bunch of properties that may be lost when someone has to sell them in a down market to meet multiple probates in several of the fifty states you might own in.
The best way to avoid a probate calamity is to group your properties into an anti-probate vehicle that is commonly referred to as the living trust. Along with every complete estate plan, a person will have the living trust, pour-over will, general power of attorney and health care directive to provide for death or incapacity. If a person is going to rent out their investment properties like a smart investor they should continue their smarts by considering that holding the property in their own name can subject them and all their personal assets to any liabilities connected at a property like injury to the renter or a workman on site. We all buy insurance to take care of most of this but do you think after Hurricane Katrina and Rita that insurance companies may be a little thin on reserves and might look at ways to deny claims? It wouldn't be the first time so as an intelligent real property investor you might want to look at a protective vehicle like a family limited partnership or limited liability company that integrates seamlessly with your estate plan.
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James Burns, Esq. Law Office of James Burns www.oc-estateplanners.com