Trusts are legal arrangements that can hold assets for other people. They’re often used in estate planning to manage and distribute assets, including real estate, after you die.
More and more people are looking to trusts to manage their homes and other properties. It can seem like a complex process, but it doesn’t have to be. Many people want to know, how do you put your house in a trust?
This article will guide you through the process of putting your house in a trust. We’ll cover the benefits, the potential downsides, the steps involved, and some important things to consider before you make a decision.
What is a Trust?
A trust is a legal arrangement in which one person, called the grantor (or settlor), gives assets to another person, called the trustee, to manage for the benefit of a third person, called the beneficiary.
Think of it like this: The grantor sets up the rules, the trustee plays by those rules, and the beneficiary gets the reward.
There are two main kinds of trusts: revocable and irrevocable.
- Revocable trusts can be changed or even canceled by the grantor while they’re still alive.
- Irrevocable trusts, on the other hand, are pretty much set in stone once they’re created. You’d need the beneficiary’s permission to make any changes.
Key Players in a Trust
- The Grantor: This is the person who creates the trust and hands over the assets. They decide how the trust will work and who the trustee and beneficiaries will be.
- The Trustee: This is the person in charge of managing the trust’s assets. They have a responsibility to act in the best interests of the beneficiaries.
- The Beneficiary: This is the person (or organization, like a charity) who will ultimately benefit from the trust’s assets. This could be family, friends, or anyone the grantor chooses.
Why put your house in a trust?
There are some pretty compelling reasons to consider putting your home in a trust.
- Avoiding Probate: Trusts let your heirs skip probate. Probate is a long, potentially expensive legal process. Trusts transfer assets faster and more privately.
- Planning for Incapacity: If you become incapacitated, a trust ensures someone can manage your assets. This saves your family from having to petition a court for guardianship.
- Control Over Distribution: A trust lets you specify when and how your beneficiaries receive assets. Your trust documents can outline specific conditions for distribution. Want your grandkids to get their inheritance when they turn 30? A trust can do that.
- Asset Protection: Irrevocable trusts can shield your assets from creditors and lawsuits. This is especially important for people in professions with high liability.
What to consider before putting your house in a trust
While trusts offer many advantages, they also have some potential downsides. Here are some things to keep in mind:
- Complexity and costs: Setting up a trust involves legal fees and paperwork, and costs vary depending on where you live and how complicated the trust is.
- Limited flexibility with irrevocable trusts: Irrevocable trusts don’t allow for changes after they’re established, which can be a problem if your life changes.
- Impact on mortgages and insurance: You may have to notify your mortgage company when you transfer your home to a trust. The transfer could also impact your insurance coverage.
- Additional paperwork: Managing a trust requires ongoing attention and paperwork.
Before you put your house in a trust, be sure to discuss these issues with an attorney and a financial advisor.
How to Put Your House in a Trust: A Step-by-Step Guide
Setting up a trust to hold your home’s title can be a smart estate planning move. Here’s how to do it.
Step 1: Evaluate Your Needs and Choose the Right Type of Trust
First, figure out what you want to accomplish with your estate plan. Do you want to avoid probate? Protect your assets? Control how your assets are distributed after your death?
Then, decide whether a revocable or irrevocable trust would best suit your goals. Revocable trusts give you flexibility, while irrevocable trusts offer greater asset protection.
Step 2: Consult with a Trust Attorney
It’s super important to get legal advice. An estate planning attorney can help you navigate the tax rules and legal requirements. They’ll also know the specific requirements in your state.
When you meet with the attorney, talk about your estate planning goals and needs. The attorney will help you decide which type of trust is best for you.
Step 3: Draft the Trust Document
Based on your instructions, the attorney will draft the trust document. This document spells out the terms of the trust, including who the trustee and beneficiaries are, and how the assets will be distributed.
Step 4: Transfer Ownership of the House into the Trust
You’ll need to prepare a new deed that transfers ownership of the house to the trust. Then, file the deed with the county recorder’s office. Keep in mind that there will be filing fees.
Step 5: Update Your Insurance and Mortgage Information
Let your insurance company and mortgage lender know about the transfer. Mortgage companies require notification of trust transfers, and you’ll want to be sure your insurance policy covers the trust as the property owner.
What are the costs of putting your house in a trust?
Putting your house in a trust has several potential costs:
- Legal fees: You’ll probably need to hire an attorney to draft the trust document and provide legal advice. This could cost you $1,000 to $3,000. If you only need a trust document drafted, it could cost $500 to $2,000.
- Filing fees: You’ll need to record the deed with the county recorder’s office. This usually costs between $10 and $100.
- Other potential costs: A new title report costs $50 to $200. Notarization is $10 to $50 per signature. Reviewing or updating a trust ranges from $200 to $1,000.
Managing a House in Trust
Once your house is in a trust, the trustee you named becomes responsible for managing it. This includes handling the financial aspects, understanding the trust documents, keeping the property in good condition, and eventually distributing the assets as outlined in the trust.
It’s essential to review your trust regularly to make sure it still aligns with your wishes and current circumstances. If anything changes in your life – a birth, death, marriage, or divorce – you’ll need to update the trust document accordingly.
Selling or refinancing a house held in trust can be a bit more complex than a typical real estate transaction. The exact process depends on the type of trust you have, so it’s important to consult with an attorney before making any moves.
In Conclusion
Putting your house in a trust offers significant benefits. It can help your loved ones avoid the time, expense, and publicity of probate court. It can also help you plan for the possibility that you become incapacitated and unable to manage your affairs. And, in some cases, it can offer asset protection for you and your beneficiaries.
Because estate planning and trust law can be complex, it’s essential to seek professional legal advice. An experienced estate planning attorney can help you create a trust that meets your specific needs and goals, ensuring that your wishes are honored and your assets are protected.
Careful estate planning is one of the most important things you can do to protect your loved ones and ensure your legacy.