Multi-jurisdictional estate planning requires research, collaboration

Every year like clockwork, when the leaves change and the temperature drops, thousands of Indiana residents flee the bitter Hoosier winter in favor of a warmer southern climate. Most often, these snowbirds find themselves wintering in Florida, and many decide to permanently relocate to the Sunshine State.

While this decision to relocate is beneficial to Hoosiers who hate the cold, the move could have unintended consequences for those Hoosiers’ estate plans. State laws primarily govern the administration of estates, and the probate rules in Florida, or in any other state, are not always the same as the Hoosier probate code.

The issue applies not only to snowbirds, but to any person who has assets in multiple states or countries. How, then, do those people determine how to administer their assets after their deaths when those assets are spread out across the country and the globe?

For estate planning attorneys, the solution to that problem is simple on paper, but the process of arriving at the solution is not. Attorneys must advise their clients of the estate planning laws governing each jurisdiction where their assets are located, but generating helpful advice usually requires extensive research and collaboration.
 

Adler

But offering well-researched advice before a client dies is essential, attorneys say, because without a proper estate plan in place, the process of administering assets in multiple jurisdictions can become complicated and costly.

“I always see it as unfortunate,” said Lisa Adler, managing partner and estate planning attorney at Harrison & Moberly. “It’s an additional cost and burden.”

Information gathering

An estate planning attorney must ask two key questions when advising a client with assets in multiple jurisdictions: what kind of assets does the client own, and where is the client domiciled?

Most often, clients will have tangible assets such as real property located in multiple states or countries as well as multi-jurisdictional intangible assets such as bank accounts. Understanding which type of asset a client is dealing with is a critical inquiry because tangible and intangible assets are handled differently in estate planning law.
 

Shelley

Typically, tangible assets will be governed by the law where the asset is located, while intangibles are governed by the law of the client’s domicile, said Greg Shelley, chair of the Estate and Wealth Transfer Planning Group at Bose McKinney & Evans LLP. In Indiana, clients who own property in Florida present one of the most common multi-jurisdictional situations, he said.

Thus, more often than not, a Hoosier lawyer is going to be asked to help a client or decedent’s family organize an estate spread out over multiple states. According to Steve Hartnett, director of education for the American Academy of Estate Planning Attorneys, the best step is to place all assets into a revocable trust, which won’t go through the probate process and will help clients avoid multiple ancillary estates.

However, if a trust has not been created — and even sometimes if it has — estate planning attorneys must verse themselves in foreign probate law to help their clients make the right decisions for their assets.

Domestic differences
 

Bouaichi

Though many states have probate laws that have similar general principles, Kristine Bouaichi, chair of the trust and estates group at Ice Miller LLP, said the devil is in the details when it comes to state-level estate planning. She gave the example of a trust that may be properly executed in Indiana, yet is ineffective under Florida law simply because there were not enough witness signatures.

Shelley has seen more notable examples of differing state probate laws, pointing to a real-life example of a man who jointly owned farmland with his wife in Indiana and Illinois. When the man died, his Indiana farmland went to his spouse. However, because of a difference in Illinois probate law, the Illinois farmland was split between the surviving spouse and a child, a result that was different than what the man intended.
 

Hartnett

Further, Hartnett said there are also times when federal law can come into play. He gave the example of community property, which is recognized in states such as California but not in Indiana. This distinction becomes important when dealing with federal tax laws.

Taking the example of two spouses each owning one half of a house in Indiana, a non-community property state, Hartnett said that if the husband died, only his portion of the house would get a step up in a federal tax basis.

However, in California, the husband’s death would lead to both portions of the house receiving a step up, a distinction Hartnett said attorneys should advise their clients of when considering a move between community property and non-community property states.

Foreign considerations

The process becomes even more nuanced when dealing with assets located in foreign countries. One of the biggest hurdles an estate planning attorney can run into is trying to establish an estate plan in a civil law country such as France or Germany, said Frost Brown Todd member Jeff Dible.

In those countries, forced heirship prohibits citizens from dictating where their property will go after their death, Dible said. Instead, a certain percentage of a citizen’s assets must go to their children, spouse, etc., making wills less common in those countries.

That difference can make it more difficult for an American client to establish their estate plan as desired in a civil law country, Dible said, but there are loopholes that can move the client closer to their target. One such loophole is the European Union Succession Regulation 650/2012, which applies to the property of people who have died on or after Aug. 17, 2015.
 

Dible

Under Article 22 of the EU Succession Regulation, an American citizen with property in France, for example, can opt to have U.S. law control the administration of their estate. But Dible noted that option can only go so far, because French law would still apply to the property with respect to issues such as death taxation.

Dible also noted civil law countries don’t recognize the concept of a trust, so creating a revocable trust to avoid ancillary estates won’t necessarily work. Instead, estate planning attorneys must research the foreign laws in question to find a way to secure clients’ assets in the manner they intended.

Collaboration and efficiency

Sometimes, additional research is not necessary when an attorney is licensed in more than one jurisdiction. Dible, for example, can practice law in New York, while Bouaichi is licensed in Florida. But if a lawyer doesn’t have the knowledge and licensure necessary to practice outside of Indiana, estate planning attorneys say the best thing they can do for a client is to consult with an attorney who actively practices estate planning law in the foreign jurisdiction where the assets are located.

Adler has been on both sides of that equation, having both consulted with an out-of-state attorney on behalf of a Hoosier and having been asked to consult on behalf of an out-of-state client. The benefit of doing so, she said, is connecting clients with experienced attorneys who can keep the estate planning process moving without getting bogged down in extensive fact-finding.

“The interesting part of my practice is that I know other people, other lawyers in Florida,” Adler said. “It’s nice to get a sense from the other lawyers and keep it as efficient as possible.”•