Q: I own a winter home outside of Indiana. When I die, will it be subject to inheritance tax? Is there anything I can do to reduce the tax burden?

A: Real estate owned outside of the state of Indiana is not included in the Indiana inheritance tax calculation. Only real estate located within the state is included for inheritance tax purposes.

Now that's not to say it won't be included in the federal estate tax calculation should your estate be subject to it. None of us have to worry about that this year as the estate tax is on hiatus. However, unless changes are made, the estate tax will reappear next year when the sunset provisions kick in. At that point, you could have some tax issues, but not because of the location.

When owning real estate outside of your resident state, taxation is not usually a serious problem. A larger problem, and one of which you should probably become familiar with, is the ancillary estate issue.

I've written about this several times before, so if this sounds familiar it's OK to stop reading here and move on to the sports section.

As a general rule, Indiana's laws stop at its borders. Indiana can't impose its laws and rules upon real estate located in another state. This same concept also applies to the probate process. A personal representative appointed in Indiana cannot exercise authority over property in another state without first being recognized in that state and jumping through its hoops.

Often times when an Indiana resident dies owning property in another state, the family finds it necessary to open two probate estates: one in Indiana and one in the state where the foreign real estate is located. The probate estate in the other state is known as an ancillary administration or simply an ancillary estate.

Opening an ancillary estate can be expensive for your loved ones. Instead of hiring one attorney, your family has to hire two. In addition, there could be two simultaneous probate proceedings. Think how much fun that will be for your family.

The good news is avoiding an ancillary administration isn't difficult. It just takes a little planning. The best way to avoid an ancillary administration is to avoid the need for probate entirely. By using a trust, you can avoid the need for probate in both states and efficiently transfer title after death.    Sure there will still be a few expenses associated with the foreign real estate, but the costs will be substantially reduced. 

 

Opinions are solely the writer's. Christopher W. Yugo is a Crown Point attorney. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, IN, 46321 or to chrisyugolaw@gmail.com. Yugo’s information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.