You inherited property in another state. Now what?
Somebody left you the family cabin in Colorado, or your mother's condo in Phoenix, and now you're a California resident with real estate in a state you visit twice a year. Everyone's advice is the same: put it in your trust. Good advice, but also incomplete, because it skips the awkward first question.
You can't put property in your trust until it's actually yours. Getting it into your name is job one, and it happens under the other state's rules, not California's. Getting it into your trust is job two. People fixate on the second job and brush over the first.
Photo by Greg Althoff on Unsplash
Job one: get it into your name
How hard this is depends entirely on how the person who died held the property. Pull whatever paperwork you have and figure out which of these you're in.
They had it in a trust. The successor trustee signs a deed transferring it to you, recorded in the county where the property sits. No court in either state.
They used that state's beneficiary deed. Many states have some version of a transfer-on-death deed. Usually you record a death certificate plus an affidavit in that county, and the property is yours. The forms and deadlines are specific to that state, so check locally.
They owned it in joint tenancy with you. An affidavit of death clears the title into the survivor's name.
It was just in their name. This is where the court process lives. If there's a will, or no will at all, the property generally has to pass through that state's probate before anyone can deed it anywhere. If your relative lived in California and owned this property in another state, that means a second, smaller case in the property's state, which is the ancillary probate you've heard warnings about. Some states have small-estate shortcuts. Whether this property qualifies depends on that state's limits, not California's.
For anything past the first scenario (it was titled in a trust), hire help where the property is. A local probate attorney or title company knows the county recorder's quirks, and their bill is small next to the cost of a deed that bounces. Your California attorney can quarterback, but the paperwork is a home game for the other state.
Job two, part zero: write down what it was worth
Do this now, before anything else, while it's easy.
Inherited property gets a stepped-up basis. This means that its tax basis resets to the value on the date of death, so the appreciation from your mother's thirty years of ownership evaporates for capital gains purposes. If she bought the condo for $110,000, it was worth $400,000 the day she died, and you sell it for $410,000 next spring, your gain is $10,000. Not $300,000.
But the IRS doesn't take your word for what it was worth. Order an appraisal effective as of the date of death. Do it soon, while comparable sales from that month are easy to find. An appraiser can work backwards years later, but it costs more, persuades less, and turns a clean number into an argument. This is the most commonly skipped step on this entire page, and skipping it is a gift to nobody but a future auditor.
If it comes with a mortgage
Inheriting a mortgaged house does not mean the loan comes due. Federal law, known as the Garn-St Germain Act, blocks a lender from calling a residential loan just because the property passed to a relative at the borrower's death. So the bank can't demand payoff simply because Mom died and you inherited.
What you should do is keep the payments going without a gap and notify the servicer that you've inherited, so they deal with you instead of an estate. And later, when you move the property into your own revocable trust, the same law protects that transfer too. Most lenders won't blink, but it is often best to tell them anyway.
Job two: deed it into your trust
Here's the part where the usual advice becomes right. Once the property is in your name, deed it into your revocable living trust. If you skip this, you haven't broken the cycle. You've pushed it out a bit. At your death, your kids inherit the same out-of-state court process you just read about, except with your name in the paperwork.
The mechanics are unglamorous:
A new deed, prepared in the format the property's state expects, granting the property from you to you as trustee of your trust. Copy the legal description from the current deed word for word. Close enough is not a thing in legal descriptions.
Notarized the way that state requires, then recorded in the county where the property sits. Recording is the step people skip, and an unrecorded deed protects no one.
When an institution asks to see the trust, give them a certification of trust instead. It proves the trust exists and names you trustee without handing over the whole document.
Tell your property insurer so the policy reflects the trust, and tell your lender if there's a loan.
One California note, for the day you do the same thing with your house here: transferring your own property into your own revocable trust is not a change in ownership under Revenue and Taxation Code section 62(d), so it doesn't trigger reassessment. Your out-of-state property answers to that state's assessor instead, and most states treat revocable trust transfers gently, but ask the county rather than assume.
Taxes, briefly
California has no inheritance tax, so nothing is owed here for receiving the property. The state where the property sits might feel differently. A handful of states still charge inheritance tax, and a separate group charges estate tax at thresholds low enough to catch a house and a retirement account. That bill, if any, belongs to the estate or to you as heir under that state's rules, so ask early.
And one thing a trust won't do, since the internet keeps promising otherwise: a revocable trust is not creditor protection. Your creditors can reach what you can reach, and you can reach everything in a revocable trust. What it buys you is the avoidance of court, privacy, and a much easier year for your family. That's plenty. It just isn't a shield.
The list
Figure out how the property was titled at death. That decides everything about job one.
Order a date-of-death appraisal this month.
Clear title with local help in the property's county.
Deed it into your trust, record it, and tell the insurer and any lender.
Inheriting property is one of the few times the estate planning machinery runs in front of you while you watch. However smooth or miserable it turns out to be, that's a preview of what your own paperwork will someday put your family through. Worth making it the boring kind of preview.
If you'd like a second set of eyes on where your inherited property stands, we're happy to help clients across California.