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The Estate Tax Trap & How to Avoid it

How Owning Property in Multiple States Can Complicate Your Legacy

For many Americans, wealth-building includes real estate in multiple states, like a vacation home in Colorado, a rental in Florida, or inherited farmland in Missouri. These properties can enrich your portfolio, but when estate planning comes into play, out-of-state ownership can bring unexpected challenges, especially regarding estate taxes and probate.

Why State Lines Matter for Estate Taxes

While federal estate taxes kick in at a high threshold (currently $13.99 million per individual in 2025) (Investopedia), state-level estate or inheritance taxes often have much lower exemption thresholds and vary widely.

For instance, Massachusetts and Oregon impose estate taxes starting at just $2 million and $1 million, respectively (PartnersFinancial; TaxFoundation).

Maryland stands out by levying both an estate and an inheritance tax (PartnersFinancial).

New Jersey, although it repealed its estate tax, still enforces an inheritance tax depending on the relationship between the heir and the deceased (TaxFoundation).

So, even if you reside in a tax-friendly state like Florida or Texas, owning property in states like Massachusetts or Maryland can expose your estate to added taxation.

The Probate Problem: Multiple States, Multiple Headaches

Taxes aren’t your only concern. Real estate held outside your home state usually triggers ancillary probate, a secondary probate process in the state where the property is located. This means separate legal proceedings, added fees, delays, and complexity for your beneficiaries (Nolo; Chamberlain Law Firm).

What You Can Do About It

Fortunately, thoughtful planning can reduce or eliminate these challenges:

Create a Revocable Living Trust

Transferring out-of-state properties into a legally funded revocable living trust can bypass ancillary probate, enabling smooth asset transfer (Kiplinger; Curranee Law).

Consult a Multi-State Estate Planning Attorney

Working with professionals who understand regional differences in estate and inheritance tax laws can help structure your estate efficiently.

Review Property Titles

Correct titling, such as joint tenancy with right of survivorship or including TOD (transfer-on-death) provisions, can simplify asset transfer (Nolo).

Consider Gifting Strategies

In some cases, lifetime transfers can reduce the size of your taxable estate and simplify inheritance.

Plan Now to Protect your Legacy Later

If you or your family own real estate across state lines, proactive planning is key to protecting your legacy from unnecessary taxes, legal delays, and administrative burdens. Seeking professional estate planning advice can help guide you in crafting a comprehensive, multi-state strategy tailored to your assets and goals.

Sources

  • Investopedia (2025) – Are Estate Distributions Taxable?

https://www.investopedia.com/ask/answers/101315/are-estate-distributions-taxable.asp

  • PartnersFinancial (2025) – 2025 State Estate Tax and Inheritance Tax Chart

https://www.partnersfinancial.com/insights/2025-state-estate-tax-and-inheritance-tax-chart

  • Kiplinger (2025) – Is a Living Trust the Right Choice for Your Estate Plan?

https://www.kiplinger.com/retirement/estate-planning/what-is-a-living-trust

  • CurraneeLaw (2025) – Probate for Real Estate Held in Multiple States

https://curraneelaw.com/probate-for-real-estate-held-in-multiple-states-out-of-state-property-management

  • Nolo (2024) – Ancillary Probate: How to Avoid Probate in Another State

https://www.nolo.com/legal-encyclopedia/ancillary-probate-probate-another-state.html

  • ChamberlainLawFirm (2024) – Mastering Ancillary Probate: Essential Multi-State Insights

https://www.thechamberlainlawfirm.com/blog/mastering-ancillary-probate-essential-insights-for-multi-state-asset-management

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