Nov 5, 2019
Once you become a homeowner, estate planning needs to include what will happen to your house after you pass away.
If you don’t put those intentions in writing, your intended recipient may have to spend a lot of time and money in order for that to happen, or they could even end up losing it altogether.
This is why you may want to put your home in a trust.
Putting your home in a trust means you’re providing instructions about who can become the owner of your house – or houses – upon your passing.
In effect, you transfer over legal ownership of the home to the trust. You can act as the trustee of that trust – and, thus, its assets – while you’re alive. Then, after you pass, ownership of the trust will transfer to your intended heir.
There’s no requirement that you put your home in a trust but using a will to transfer ownership isn’t the same thing.
By putting your home in a will, it will be subject to the court’s asset-distribution process, also known as “probate.” This process can easily take a year and comes with a number of costs, too.
A trust, on the other hand, comes with instructions about how asset distribution – including your house – should be carried out. This means the courts don’t have to be involved. These instructions and their execution can be kept completely private, too, which isn’t necessarily the case with a will.
While it might seem like putting your home in a trust would be nothing but advantageous, that may not necessarily be the case.
Due to your unique financial situation and goals, it’s important that you understand the pros and cons of this decision.
Again, trusts are designed to avoid probate and the burdensome costs that often go along with it. While it’s true that some states have come a long way in terms of streamlining those kinds of costs, avoiding probate remains one of the main priorities for people pursuing a living trust. Homeowners who are interested in putting their house in trusts want to make sure their heirs can take over ownership of the home with as little time and money spent on the process as possible.
Similarly, a trust can be used to transfer other properties, too, even if they’re located in other states. By using a trust for those other properties, you’ll avoid probate costs for them, as well.
No one likes thinking about a time when they may be unable to manage their own affairs because of illness, but it’s an important topic to confront as we get older. After all, while not common, that sort of thing certainly does happen.
Putting your home in a trust is an effective way to protect against something like a stroke getting in the way of how the property is managed and, eventually, transferred.
Instead, a new trustee will be able to fulfill the provisions of your trust, including what you intended for your house and any other properties.
Make your spouse your co-trustee, and this becomes even easier. They can remain as your trustee while also managing your home (or homes) because it’s protected by the trust.
Putting your home in a trust won’t actually grant you any sort of favorable tax advantage. That’s a common misconception. As a living trust is revocable, it can also be modified or even dissolved altogether, which would make it a formidable weapon against proper tax collection if the IRS offered special terms to grantors.
However, you might be able to reduce your estate-tax obligation if your estate is designed with this purpose in mind. This is why you should take some time to work with an experienced estate planner. Put things in order first, and then put your home in a trust to save on taxes.
With all that being said, many homeowners look at the costs and complexity involved with designing a trust and decide it would make much more sense to opt for a simple will.
Furthermore, things can get even more complicated as time goes on. If you think you’ll be buying or selling properties in the future, you’ll need to be very diligent about how you move them in and out of your trust.
Of course, those kinds of transfers will come with more costs, as well, which is one more reason many owners decide they’ll use a will instead.
As we touched on earlier, putting your home in a trust will keep it from probate.
Unfortunately, the same won’t go for the rest of your assets, even if you have a will in place for them.
This even includes modest bank accounts or investment accounts that never saw dramatic growth. Your trust won’t save them from the probate process just because they’re not worth much.
Your estate will also have to file tax returns and submit to asset valuations upon your passing. For some homeowners, the costs involved negate any savings that would have been enjoyed by avoiding probate.
As you can see, while putting homes in trusts is important, it might not always be the best choice.
If you’re thinking about buying or selling a house in the near future, you should know that most lenders won’t let you do either in the name of a trust.
Instead, you’ll most likely need to remove the property from the trust before selling or add it in only after purchasing.
Also, we highly recommend you speak to an attorney about your unique estate-planning needs. The information in this article is only meant to provide general information about putting your home in a trust. This post should not be misconstrued as personalized legal or tax advice.
What we can help you with is connecting you with an experienced real estate agent if you decide it makes sense to move forward with buying or selling. Contact us today and we’ll explain how we can help you find the perfect agent and even save money in the process.