When planning your estate, you’ll want to think about what happens to your assets, like your home, after you die. One option is to put your house in trust. Trusts are legal arrangements that let you control how your assets are managed and distributed.
Using a trust can help avoid probate, maintain privacy, and potentially reduce taxes. But is it the right choice for you?
This article provides a complete overview of putting a house in trust, including the types of trusts available, the benefits, the steps involved, the costs, and other important considerations.
What is a trust, and why put a house in one?
A trust is a legal agreement that allows a grantor, or settlor, to transfer ownership of assets to a trustee. The trustee then manages those assets for the benefit of a beneficiary or beneficiaries.
Trusts are a key tool in estate planning, allowing you to manage and distribute assets like real estate after your death.
One of the main reasons people put a house in trust is to avoid probate, which can be a long and costly legal process.
Trusts also simplify property sales after death, because the trust appoints a trustee who can handle the sale.
Types of trusts for real estate
There are several kinds of trusts that you can use to hold real estate. Here are two of the most common.
Revocable living trusts
A revocable living trust allows you, as the grantor, to stay in control of the assets while you’re alive. You can also make changes to the trust whenever you want.
One of the main benefits of using a revocable living trust for real estate is that you have more control over what happens to your assets after you die. It can also help your heirs avoid probate, which can make the whole process easier for them.
Irrevocable trusts
Irrevocable trusts offer some degree of asset protection and can minimize your taxes, but you can’t easily modify or terminate the trust once it’s set up.
Irrevocable trusts can shield your assets from creditors, so they’re a possible way to protect your wealth.
What are the benefits of putting your house in a trust?
A trust can be a powerful tool for managing your assets and planning for the future. Here are some of the main advantages of placing your house in a trust:
- Avoiding Probate Court: Trusts bypass the probate process, which can be lengthy, expensive, and public. This allows for a faster and more efficient transfer of assets to your beneficiaries.
- Privacy Preservation: Unlike wills, trusts are typically not part of the public record. This means that the details of your estate and beneficiaries remain private.
- Asset Protection: Certain types of trusts, particularly irrevocable trusts, can offer protection from creditors. This can safeguard your assets from potential lawsuits or financial difficulties.
- Estate Tax Advantages: Depending on the type of trust and current tax laws, a trust can help minimize or even eliminate estate taxes. It’s worth noting that estate taxes can range anywhere from 18% to 40%, so this can be a significant benefit.
How to Put Your House in a Trust: A Step-by-Step Guide
Putting your house in a trust can be a smart move, but it’s not something you should do without careful planning. Here’s a basic overview of the steps involved:
- Consult an Estate Planning Attorney: Don’t skip this step! An experienced attorney can help you understand the tax implications and legal requirements of setting up a trust. They’ll make sure you’re doing everything correctly.
- Choose the Appropriate Type of Trust: Not all trusts are created equal. You’ll need to figure out which type of trust best suits your needs and goals. For example, you’ll have to decide between a revocable and an irrevocable trust, depending on your specific circumstances.
- Draft the Trust Document: Creating a trust document is complicated. This isn’t a DIY project. Your attorney will draft a legally sound document that reflects your wishes.
- Transfer the Property Title: Once the trust is established, you’ll need to transfer the title of your house to the trust. This involves creating a new deed that reflects the change in ownership.
- Update Insurance and Mortgage Information: Don’t forget to notify your insurance company and mortgage lender about the transfer. They’ll need to update their records accordingly.
Costs and other considerations
Setting up a trust
The cost of setting up a trust varies. The price depends on the complexity of your estate plan and whether you hire an attorney. You can expect to pay anywhere from a few hundred to a few thousand dollars.
Selling or refinancing a home in a trust
Selling a home that’s held in a trust can be more complicated than selling a home outright. The complexity often depends on the type of trust you have.
Similarly, refinancing a home in a trust can be more or less complex based on the specifics of your trust.
Transferring assets
For a trust to be effective, you must continually transfer assets into it.
Summary
Putting your house in a trust offers several key benefits, including avoiding probate, maintaining privacy, and potentially lowering your tax burden. Trusts are a powerful tool for managing and distributing your assets, including real estate, after you’re gone.
However, deciding whether to put your house in a trust is a complex process that requires careful consideration of your individual circumstances and long-term estate planning goals. That’s why it’s essential to seek guidance from an experienced estate planning attorney who can help you determine the best course of action for your unique situation.