|When Should I Put My Home in a Trust?
If you have a residence you would like to pass onto loved ones after your death, and you’re worried about your home going into probate, you may want to put your home in a property trust. If that is something you have been considering, it’s a fairly straightforward, if complex, process. We’ll go over out how it works.
Consider working with a financial advisor if you need help setting up an estate plan or managing inherited money.
What Is a Property Trust?
A property trust is a legal contract that allows your home (or any other property you own) to be given to a beneficiary.
In other words, a property trust makes the transfer of your home to someone else legal. And this process makes it far more likely that the outcome you want will happen than only going by verbal consent. When you a property trust, it can either be a revocable or an irrevocable trust.
There are benefits to either. For instance, if it’s revocable, you can change the terms of the trust up to your death – but by not making it irrevocable, the assets won’t be completely protected from creditors if you were sued. However, it’s important to note that a court could reclaim those assets if it was determined they were not moved in good faith relating to a lawsuit.
Why Do People Create Property Trusts?
There are three common reasons that someone would want to place a house (or other type of personal residence), avoiding probate, privacy and simplicity.
People who put a house in a property trust do so because they want to avoid their home going into probate, which is the judicial process in which property not in a trust goes through a court when the owner passes away. During probate, debts or taxes owed on the property are paid. And then, if there is no will outlining what should be done with the property, it will be distributed according to your state’s laws.
Generally, if you don’t leave your home in a trust and mention who should get it in your will, your property will usually go to a spouse or child. And failing that, the next closest would be a living relative, such as a parent, sibling, nephew or niece. (If no living relative can be found, the state will probably inherit the property.)
While your home may up with your desired beneficiary without your home being in a trust, all of this takes a lot of time and expense. This is largely due to legal fees and court costs. You likely save your beneficiaries a lot of frustration, time and expense by putting your home in a trust.
The cost of probate is a significant part of why people put their home or homes in a trust. The probate costs are borne by the estate and thus the beneficiaries. Beneficiaries also can be stuck with paying estate expenses, such as property taxes on a home that goes through probate.
Keeping Your Financial Affairs Private
Another benefit to creating a property trust that you may have not considered: when a home is in a trust, it’s kept private. If your home is passed onto your descants through probate, that will be public knowledge.
And family dynamics can be complicated. You might be worried about relatives feeling you favored one over the other. Or you simply don’t want everyone to know what happened to your property after your death. That’s another reason to put your home in a trust.
Simplifying the Trustee’s Work
Being the utor of an estate is difficult work. This is especially true if it’s fallen to a family member who doesn’t do this as their day job. If you want beneficiaries to have your home, putting it in a property trust can simplify matters for the trustee.
Managing an estate can be complicated if the home you want to give to a beneficiary is in another state. For example, if you’re leaving a vacation home in Arizona to your family, but you live in Indiana, the utor of your estate or successor trustee – whoever is managing your trust – will be navigating each state’s probate process.
How to Put Your Home in a Trust
There are generally six steps you’ll need to take:
• You can a trust with estate planning software. Or you’ll want to work with a financial advisor or an estate planning attorney, or more likely, both. You also may want to work with a certified public accountant to work out the taxes. For instance, if you receive income from the property once it is in the trust, you’ll need to report it on your tax returns. (Property taxes are assessed whether the property is in a trust or in probate.)
• You will name the trustee and your beneficiaries.
• Once the trust has been set up, you’ll need to get it notarized.
• Following that, you’ll have to a new deed for the property.
• Then, you’ll need to get the new deed notarized.
• Place the property into the newly d trust.
Working With a Professional Is a Good Idea
Working with a professional to put your home in a trust is certainly advisable. You can do it yourself through software programs. But the safer route is to work with an experienced professional. You may also find out that they think you should wait to put your home in a trust. For instance, if you’re still making payments on your mortgage and plan on refinancing, they may suggest waiting until you’ve refinanced.
You are also allowed to refinance a mortgage on a house that has been placed in a trust. (And putting it in a trust doesn’t change the fact you still need to make mortgage payments until the house is paid off.) But your bank may ask you to remove the house from the trust in order to refinance it.
And then, you would put the house back into the trust. These are the quirks of homes in a trust that a professional may be able to guide you through more easily than if you do this on your own.
If you have a home you love and loved ones whom you would like to see live in that home, or at least inherit it so they can sell it then you really should consider putting the property in a trust. While it may be enough to put your wishes for who will receive your home in a will, you could have a family member successfully contest it or waste a lot of legal resources trying to do so. Placing your house in a trust can save your beneficiaries money. And it can buy you a lot of peace of mind.
Estate Planning Tips
• Planning out your entire estate can seem overwhelming and difficult. But a financial advisor who specializes in estate planning can help.
• If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.