Is Your Home Prepared for the next Earthquake?
May 24, 2024
House in Trust – It’s never fun to think about death but it is very important to ensure that your assets will be distributed according to your will. Without a plan, the probate process will decide about the distribution of assets based on your state’s inheritance laws. Probate can be a lengthy and expensive ordeal.
Trusts are available for portfolios of all sizes, from a simple home to those who own multiple estates.
What Is A Property Trust?
A property trust is a legal entity that allows property to be passed from the grantor to the beneficiary. A trustee oversees the trust and manages the assets; many times, the trustee is the grantor.
Now that we understand that a Trust is a legal vehicle to transfer the property according to the grantor’s instructions, we need to enquire as to why it may be advantageous to place a house into a trust.
Why place House in a Trust?
The primary benefit of putting your house in a trust is to bypass probate when you pass away. Without a trust, all your assets, regardless of whether you have a will, will go through the probate process.
Probate is the judicial process that your property goes through when you die. During this process, your assets will pay any debts or taxes you owe, and then the rest of your property will be distributed according to your will. If you don’t have a will in place, your property will be distributed according to your state’s laws.
Probate can be a lengthy process. Simpler estates might be completed in just a few months, but large estates or complex situations might have a probate process that lasts as long as a year or more. If your will is contested, it can last even longer. It can also be expensive when you factor in various court fees, legal expenses and administrative costs.
How Does Putting A House In A Trust Work?
When putting assets into a trust, you will most likely name yourself as the trustee; then, you’ll name a successor trustee who will take over the management of the trust following your death.
At that point, your chosen trustee will be responsible for following the instructions of the trust and distributing the assets in the trust to your beneficiaries. It can give you peace of mind knowing that ownership of your home and assets will be passed to the person you designate as soon as you pass away. The process also helps your beneficiary avoid a drawn-out legal process first.
Do You Need A Trust If You Have A Will?
If you already have a will, should you set up a trust? It really depends on your needs and the needs of your family. Generally, a trust is a faster, more efficient way to get your assets to your heirs but setting up a trust is often more expensive than creating a will.
Well-planned estates often utilize both trusts and wills. You might choose to put just a few vital assets, such as your house, in a trust and have everything else be decided by your will. This can help ensure a speedy transfer for your most important assets while the rest of your estate goes through the normal probate process.
Types of Trusts
There are many types of trusts, but the two most important ones are “revocable” and “irrevocable” trusts.
Revocable Trust
A revocable trust, sometimes referred to as a living trust, is one that can be revoked or changed at any time. During your lifetime, you’re free to make changes to the trust or terminate it completely.
With a revocable trust, you’ll typically act as your own trustee and name someone else to become trustee upon your death or incapacitation. While you’re alive, you have control over the assets in the trust.
When you die, a revocable trust becomes irrevocable, and your successor trustee will take control and manage the trust according to your instructions. Revocable trusts are generally still subject to estate taxes and won’t protect your assets from creditors.
Irrevocable Trust
An irrevocable trust can’t be changed or terminated after it’s been executed. With this type of trust, you forfeit ownership of any assets in the trust and the trustee takes control of these assets.
Because you no longer own the asset, it’s no longer part of your estate and generally won’t be subject to an estate tax or vulnerable to your creditors. Though that might seem like a positive, it’s important to consider the full implications of no longer legally owning the assets you put into the irrevocable trust.
If you’re thinking about putting assets into this type of trust, you might want to first consult an attorney.
How To Put A House In A Trust
If you’re interested in putting your house into a trust, there are a couple of initial steps you’ll need to take in order to start this process.
- Create a Revocable Living Trust
If you want to hold your property in a trust, you’ll first need to create one. To create a revocable, living trust, you’ll need to choose a successor trustee who’ll take control of the trust once you pass away. You’ll also need to name your beneficiaries.
You can choose anyone to be your successor trustee, but just be sure they’re someone you can count on. If your estate is fairly complex, you might choose an attorney, trust company or other professional to be your successor.
- Prepare the Trust Agreement
You’ll then prepare your trust agreement, which is a document outlining the details of the trust. You can find standard trust agreements online, or you can ask your lawyer to create the documentation. For the trust to be valid, you’ll have to sign it in front of a notary public.
- Complete a New Deed
To move your home into the trust, you’ll need to fill out a new deed. You can typically find state-specific property deed forms online, or you can have your attorney complete this process for you. This document will also need to be signed in front of a notary public before you record it with your county recorder or clerk’s office.
Should I put my House in a Trust?
Still not sure whether to put your home in a trust? Let’s look specifically at some of the pros and cons of choosing this option.
Advantages Of Putting Your Home In A Trust
The main benefit of putting your home into a trust is avoiding probate. Placing your home in a trust also keeps some of the details of your estate private. The probate process is a matter of public record, but the passing of a trust from a grantor to a beneficiary is not.
Putting your home in a trust can also help you avoid a multistate probate process. For example, if you own a primary residence in Idaho and a vacation home in South Carolina, your South Carolina property will need to go through that state’s probate process while the rest of your estate goes through the Idaho probate process.
That means the executor of your estate will need to handle two probate processes.
Disadvantages Of Putting Your Home In A Trust
Whether it makes sense for you to put your house into a trust is largely contingent on your goals. Setting up a living trust – depending on how you do it and the assets you put into it – can be a complex and costly process.
Additionally, if the trust only holds your house, you’ll still have other assets that need to go through the probate process, so you can’t truly bypass probate completely. As we’ve already noted, putting your house into a trust can also make refinancing more difficult, so if you’re planning a rate-and-term or cash-out refinance soon, you might want to hold off on establishing your trust.
Putting Your House In A Trust Can Help The Inheritance Process
Everyone will agree that it is very important to make arrangements for the distribution of your assets to your heirs following your death. After the plan is arranged, you will certainly have peace of mind.
It is best to consult with a lawyer regarding your estate and trust, laws vary from state to state making things complicated. An attorney specializing in estates and trusts will be able to advise and complete the plan according to your desire.
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