By Duane L. Pinnock, Esq., LL.M.
MIAMI – How many of us own, or have family members who own, real estate here and abroad? You know, that house or piece of land you bought back home years ago to which you always planned to retire and live out your days. Or perhaps you don’t have property back home, but instead something purchased in another state, like that house or lot you bought as an investment in South Carolina or Georgia or Tennessee.
For many people, owning real estate is a big part of the American dream. However, owning real estate in two different jurisdictions at death is one of the most persistently overlooked areas of estate planning and one which lays in wait as an expensive trap for the unprepared and unwary.
The jurisdiction that has authority over your real estate is an important consideration for the owner of the property at the time of death. In the US, each state is its own separate jurisdiction as is every country outside of the US. As a general rule when an individual dies, his non real property (called ‘personal property’), is treated as having been located wherever that individual lived and thus subject to the probate administration of that jurisdiction. This is irrespective of wherever that personal property was actually located. Therefore, for a Florida resident who dies with a bank account in New York, the executor of the estate in Florida will have the power to access that New York bank account based solely upon the probate administration in Florida. No legal activity in the state of New York would be necessary. Real estate, however, operates quite differently.
If an individual dies owning real estate in a jurisdiction other than where he lived, the executor of his estate will not be able to administer that real estate and distribute it to the heirs and intended beneficiaries of that individual without opening up a new and separate probate administration in the state where that real estate is located (this is called an ‘ancillary administration’). This, of course, will necessitate the hiring of another attorney (one in the jurisdiction where the real estate is located) and incurring further court, administrative and attorney’s fees in the process, as well as potentially delaying the complete administration of the estate.
This would mean that if a Florida resident died owning real estate in New York, the executor in Florida would have to hire another attorney (one in New York this time) to open an ancillary probate administration in New York solely for the purpose of administering that real estate. This is because real estate cannot be moved from the state in which it is located and thus is always subject to the jurisdiction of that state (including laws regarding estate administration and probate).
Things get even more complicated if the deceased owned property in a jurisdiction outside of the US, such as in the Caribbean. In the US, every state must recognize the judgments and public acts of a sister state (where that sister state has jurisdiction). However, this instant recognition between the sister states is not always the case with a non-US jurisdiction.
This could mean a probate administration which was conducted in the US may not be fully recognized abroad. Thus the necessity for ancillary probate administrations may be compounded since: 1) a probate administration in Florida will have no power over the real estate in Jamaica, or the Bahamas, or Dominica, or Belize, or Haiti, etc.; and 2) the foreign jurisdiction may not recognize the probate administration that took place in Florida even with respect to non real estate (or Florida may not recognize such an administration from a foreign jurisdiction). Further, some foreign jurisdictions have strict inheritance laws, such as forced heirship, dower, and curtesy, which may prevent an individual from disposing of his property as he wishes. Finally, if the idea of hiring lawyers and paying administrative fees and court costs in two different states in the US sounds expensive and wasteful, imagine doing the same here AND abroad! And this is not even considering the potential for taxes on the transfer of the property in the foreign jurisdiction.
So that’s the bad news. The good news is that these issues can be avoided with careful, but not necessarily complex, estate planning. With proper planning no ancillary administration is needed, because the real estate ownership has been converted into ownership of an intangible which, as stated above, is always viewed as existing wherever the individual lived. Therefore it is of paramount importance, particularly for people who may own property in multiple jurisdictions, to plan for the orderly and safe transfer of the real estate, and the wealth contained therein, to their heirs and beneficiaries.
For people who have worked diligently to achieve this, it would be a shame to fritter away such gains because of they failed to take the actions necessary to preserve the fruits of their labor. Always remember: failing to plan is planning to fail.
Duane L. Pinnock, Esq., LL.M., is a Trusts & Estates attorney in Miami. He is Of Counsel with the law firm delancyhill, P.A. (www.delancyhill.com).
