Why would you put your house in a trust?
If you’re thinking of putting property in a trust, you may be wondering about the pros and cons of doing so.
This guide aims to give you a better understanding of the nuances between setting up a trust and creating a will, especially when it comes to your property.
But do you even need a trust if you already have a will?
Let’s start by understanding why it pays to have both.
Estate planning is about creating a custom plan to allow you to transfer your money, property, and assets to your family in the most efficient way possible. The two most common estate planning documents are the last will and testament and the revocable living trust.
Both of these documents let you specify which of your loved ones should receive your assets after you pass. However, with a last will and testament, your assets must go through probate court before your family can receive them. This can take months, sometimes even years if your will is contested in court.
On the other hand, a living trust avoids probate court. This means that your family can receive your money, property, and assets in a matter of days or weeks after you pass instead of months or potentially years.
The advantages of placing your house in a trust include avoiding probate court, saving on estate taxes and possibly protecting your home from certain creditors. Disadvantages include the cost of creating the trust and the paperwork. Take a look at the pros and cons of creating a trust before you put your house into it.
Avoid Probate
Most living trusts are structured to avoid probate and its costs. While some states have streamlined their probate process, many still require cost, time and attendance at multiple hearings. Most homeowners wishing to avoid probate and transfer title to their home to their heirs quickly find avoiding probate through a trust to be a strong advantage. Should you choose to transfer other properties, some of which are out of state, you will avoid probate in other jurisdictions, also.
Future Incapacity Protection
Should you become ill and unable to properly manage your own finances, another trustee can be selected to manage your trust to protect your home. Living revocable trusts give you this benefit. If you have a co-trustee that is your spouse, this can further simplify and protect your home. Your spouse can remain as trustee, managing your home and any other assets you’ve transferred to the trust.
May Save on Estate Taxes
While placing your home in trust generates no extra favorable tax treatment, you may save some estate taxes if your trust is designed properly. Much depends on how efficiently your financial plans for your estate have been constructed. Since living trusts are revocable, allowing changes or, even, dissolution, at any time, the trust and the grantor enjoy no beneficial tax treatment. Creating a trust without a good estate plan often saves little or no tax consequences.
What Assets Should You Put In Your Trust?
So, what are some of the assets that go into a trust. Clearly a house or any other real or commercial property should go into a trust that you own. Bank accounts, CDs, investment accounts, money markets, bonds, any assets that have your name on them should be transferred to your trust.
The assets that generally don’t go into a trust, although on some occasions they do, are those assets in which you can name a beneficiary. So, IRAs, annuities, 401ks, deferred compensation accounts, 403(b)’s, life insurance policies. Those types of assets that have some kind of tax treatment that you’ve gotten through retirement and have your name on them can all have a beneficiary designation. So, you would name a spouse, or you would name a child as your beneficiary on those. Those typically do not get retitled into a trust. However, a trust could be named as a beneficiary or a contingent beneficiary.
But, before you do that, you should always consult an attorney. An estate planning attorney, an experienced estate planning tourney in this area to know which choice to make as far as naming those beneficiaries. So, if you have any questions get a hold of a good estate planning attorney and ask them.
Will I Lose Control Of My Home When Putting A House Into A Trust?
Not at all, you keep full control of all of the assets in your trust. As Trustee of your trust, you can do anything you could do before – buy and sell assets, gift them away, mortgage them out, and you can still change or even cancel your trust altogether. That’s why it’s called a revocable living trust. You even file the same tax return. Nothing changes but the name on the titles.
