This is a composite account of many cases we have worked on over the years. The names and events have been changed to avoid disclosing confidential client information.
The out of state vacation home can be a wonderful family retreat ”“ generating years of happy memories for your family. Dennis and Margaret adore their waterfront home on Maui and own it in both their names. Sam and Betty love the desert and own a home in Tucson through their limited liability company (LLC). Robert and Alice are looking to buy a vacation home in British Columbia – close to Robert’s family.
However, things that can be so wonderful during life can cause some real headaches at death, unless you plan ahead. When Dennis or Margaret dies, it will be necessary to open a probate in Hawaii to transfer title to the survivor of them and if the survivor does not take corrective action, another probate in Hawaii will be needed at his or her death. A Probate in Hawaii often costs eight to ten times more than one in Washington. Those extra fees can be avoided by transferring title to a revocable trust.
Sam and Betty’s interests in their LLC will not be subject to Arizona probate, but may be subject to the Washington estate tax. Depending on the value of their estate, their heirs may unnecessarily pay state estate tax on the property. At present, Arizona does not have an estate tax so if Sam and Betty transferred title from their LLC to a revocable trust, they would still avoid the Arizona probate system and would also avoid the Washington state estate tax.
Robert and Alice need to be cautious of the Canadian tax system. Canada does not have an estate tax, but its income tax applies to many transfers that are tax-free in the U.S. For example, transfers at death are subject to income tax in Canada. Moreover, the Canadian real estate excise tax applies to a transfer by gift, which is not the case in Washington. A combination of a Canadian revocable trust and a Washington LLC will allow Robert and Alice to avoid the Canadian probate and income tax systems at their deaths.
Consult with your attorney before buying real estate outside of Washington ”“ do not tarnish years of happy memories for your family by failing to plan properly for your vacation property.
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