Learn how to put a house in trust, as this can be an innovative estate planning move. It offers benefits like avoiding probate, maintaining privacy, and potentially reducing estate taxes. However, the process involves several legal considerations and steps.
This article will review the basics of putting a property under a trust, highlighting key considerations and offering practical tips to ensure a smooth transition.
Understanding Trusts
It’s a legal arrangement where you (the grantor) transfer ownership of your assets, including your house, to a designated trustee. The trustee then manages these assets for the benefit of your designated beneficiaries.
Before you put your house in a trust, know the following types of this legal arrangement:
Revocable Living Trust
This type of trust lets you maintain control over your assets and estate during your lifetime. Fortunately, you can modify or revoke the trust at any time.
Irrevocable Trust
Once established, this type of trust cannot be easily changed or revoked. It offers stronger asset protection but less flexibility.
Legal Considerations
It’s also best to understand the following concepts before making a significant decision:
Ownership Transfer
When you put your house in a living trust, you change ownership from your name to the trust’s. The transfer must be performed correctly for it to be legally valid.
Mortgage Implications
If your house has a mortgage, you must consider how placing it in trust affects your loan agreement. Some mortgages have a “due-on-sale” clause that this transfer could trigger.
Property Taxes
Transferring property to a trust might affect property tax assessments in some jurisdictions. Research your local laws or consult with a tax professional.
Estate Taxes
While trusts can help reduce estate taxes, the specific impact depends on the type of trust and your overall estate value.
Homestead Exemptions
Putting a house in a trust might affect homestead exemptions in some states. Verify how your state laws treat homes in trusts.
Steps to Put Your House in Trust
Here are the steps you should follow when you decide to place your home under a trust.
1. Choose the Right Type of Trust
Decide whether a revocable or irrevocable trust better suits your needs. You should decide based on your estate planning goals, tax considerations, and desire for control over the asset.
2. Create the Trust Document
Commission an estate planning attorney to draft a trust document. This legal instrument outlines the terms of inheriting a house in a trust, including trustees, beneficiaries, and asset management.
3. Record a New Deed
After establishing the trust, you’ll need to create and record a new deed transferring ownership of your house to the trust. It typically involves:
- Preparing a new deed with the trust as the grantee
- Signing the deed before a notary
- Recording the deed with your county recorder’s office
4. Update Home Insurance
Inform your home insurance company about the change in ownership. You may need to adjust your policy to reflect the trust as the new owner.
5. Notify Relevant Parties
If applicable, inform your mortgage lender about your decision to put the house in a living trust. You may also need to update utility companies and property tax records.
Practical Tips
It’s essential to avoid the common pitfalls when executing a trust. Consider the following expert tips:
Work with Professionals
Consider working with an estate planning attorney, tax advisor, and financial planner to help ensure you adequately address all aspects of the process.
Choose Trustees Wisely
If you need to act as your trustee, select someone trustworthy and able to manage your assets according to your wishes. This move will help ensure a smooth administration of a house in a trust.
Review and Update Regularly
Life circumstances change. Review your trust regularly, check if it still aligns with your goals, and make updates as needed.
Consider a Pour-Over Will
This type of will ensures that any assets not already in your trust at your death are “poured over” into it, providing a safety net for overlooked assets.
Be Aware of Funding the Trust
Simply creating a trust isn’t enough—you must adequately transfer assets. This process, known as “funding” the trust, is essential for the trust to function as intended.
Inheriting a house in a trust won’t always be easy, so it’s best to safeguard the trustees’ rights through a legal document.
Consider Future Sales
Understand how having it in a trust might affect the sale process. While it’s generally not a significant obstacle, it can add some complexity to the transaction.
Be Cautious with Refinancing
Some lenders may hesitate to refinance a property held in trust. If refinancing is a possibility, discuss this with potential lenders and your trust attorney to understand your options.
Avoiding Pitfalls
While it’s possible to create trust yourself, the complexity of the process and the potential for errors make professional help advisable for most people.
Many only see the benefits of putting your house in a trust. They underestimate the intricacies and overlook critical aspects, such as the tax implications of this practice.
Understanding how this decision affects your income, property, and potential estate taxes is essential.
Another common mistake is failing to fund the trust adequately. Some people create a trust but need to transfer assets into it correctly, rendering the trust ineffective. This oversight can defeat the purpose of setting up the trust in the first place.
Additionally, knowing how to put the house in a trust and choosing the right type of trust can lead to unintended consequences. It’s vital to carefully consider your options and select a trust that aligns with your goals and circumstances.
Understand the Legal Implications of Trusts With Cristy
Cristy J. Carbón-Gaul understands that designating a trust to your property can be valuable to your estate plan, offering benefits like probate avoidance and potential tax advantages. However, it’s a process that requires careful consideration and proper execution.
You can successfully transfer your home to a trust and gain peace of mind about your estate’s future. We’re here to help you through the process. Talk to us today and learn how to put a house in trust!