Get it right from the beginning
Should You Trust Your Home to a Trust?
Imagine you’ve just bought your dream home. Amidst the excitement, your tax accountant asks, “Are you putting the house in trust?” This simple question opens a door to an important aspect of estate planning—deciding whether to put your house in a trust. Let’s explore why this might be the smartest move for your new home and future.
Putting Your House Your Name or in a Trust?
To get a better understanding of if you should put a house in a trust, let’s first start with definitions:
Will – A legal document in which you give certain instructions to be carried out after your passing. It allows you to direct the distribution of your assets and allows you to nominate guardians for your minor kids. Having a Will alone can almost guarantee probate.
Probate- Legal process when someone passes away, the assets in their name are distributed to their heirs and bills are paid to creditors. The biggest issue (besides the expensive cost) with this is that it is time-consuming. In LA and Ventura counties, it can take 12 months – 2 years on average to settle and that is with no family fighting. Additionally, it is a very expensive process to go through as well as public for anyone to see.
Trust- An agreement between the Grantor (the creator of the trust) and the Trustee (the person who agrees to hold legal title to the property). The agreement provides instructions to the Trustee as to how to distribute the assets to the Beneficiary. During your lifetime, you are all 3 roles when you have a revocable living trust. You are in control of your assets in your trust.
Understanding Trusts and Their Types
The two main types of trusts you’ll encounter are revocable and irrevocable trusts. Each has its specific features and implications for property owners. Additionally, revocable living trusts have unique benefits for real estate management that we’ll explore in detail.
Living Trusts: A Key Tool for Real Estate
A living trust is established during the property owner’s lifetime and can be altered or revoked as long as the owner is alive and competent. This flexibility makes living trusts particularly appealing for real estate holdings for several reasons:
- Efficient Property Management and Transfer: Living trusts allow for the seamless transfer of property to beneficiaries upon the owner’s death, bypassing the probate process. This means quicker distribution, reduced costs, and privacy preservation.
2. Continuity of Management: Should the property owner become incapacitated, a successor trustee can manage the property, ensuring continuous oversight without court intervention.
3. Real Estate Specific Considerations: When placing real estate in a living trust, the property’s title is transferred to the trust. This action requires careful handling to ensure the property is properly managed and ultimately transferred according to the trust’s terms.
Pros of Putting a Property in a Trust
Avoiding Probate: Nobody likes red tape, especially during emotional times. Trusts allow the transition of property to your heirs, avoiding the long, public, and cumbersome probate process. Fees in probate are high and determined based on this code.
Here is a probate fee calculator to get an idea of how much it would cost.
Enhanced Privacy: The details of a trust, including real estate assets, remain private, unlike probate proceedings, which are public.
Potential for Tax Advantages: While living trusts don’t inherently reduce estate taxes, they can be structured in ways that benefit the overall estate planning strategy. Check out my blog on Prop 19 for further tax advantages to consider.
Flexibility and Control: Living trusts, in particular, offer the grantor control over the assets, with the ability to modify the trust as circumstances change. For example, it allows you to choose a successor trustee, list the trust as a back-up beneficiary for your minor kids for life insurance, allows you to set-up sub-trust for your kids to receive money at the age of your choice rather than 18, and it allows for assets protection from creditors, predators, and future spouses of your beneficiary and surviving spouse.
Cons of Putting a Property in a Trust
Setup and Maintenance Costs: Quality comes at a cost. Creating and maintaining a trust requires some upfront investment. In working with Crista Hermance, of Hermance Law, it is approximately $4,500 – $6,000 for setting up an estate plan.
Irrevocability of Some Trusts: Once you set up an irrevocable trust, consider it carved in stone (at least unless you want to have court intervention). This permanence offers benefits and drawbacks, depending on your need for future flexibility.
Complexity in Management: Trusts aren’t a set-it-and-forget-it deal. They require management and a keen eye on details, likely necessitating professional intervention when someone passes away.
Potential Overlook of Minor Details: Dotting the i’s and crossing the t’s is crucial. Failing to properly fund the trust or overlook details can lead to headaches down the line. Be SURE before you have no choice.
Can I just DIY it with forms off the Internet?
DIY forms are not a great option according to Crista. She is often called in during crisis management to resolve these solutions as they are often not set up properly, not signed, etc. Seeking a professional now can save time and money not going to probate. You can reach Crista for a free consult here.
Trusts vs. Personal Ownership: Making the Right Choice
Choosing between a trust and personal ownership isn’t a one-size-fits-all decision. It should be noted that if the property is held in joint tenancy with a right of survivorship automatically avoids probate whether or not the property is in the living trust. In this case, if both partners ascend, it would go to probate. After talking with Crista, it was clear that the important thing is that you don’t. So, in summary, it’s about balancing the control and simplicity of owning property in your name against the strategic benefits of a trust. Consider your long-term goals, the complexity of your estate, and the needs of your beneficiaries.
Living Trusts vs. Other Trusts: Real Estate Considerations
While all trusts offer benefits for estate planning, living trusts are particularly suited for real estate due to their flexibility, control, and efficiency in transferring property. Understanding the nuances between different trusts and how they apply to real estate can guide you in choosing the best option for your estate. Seek a professional to help you determine this.
Conclusion: To Trust or Not to Trust Your Property
Deciding whether putting a property in a trust is right for you isn’t simple. It’s a decision that weighs the balance between ease and privacy, between control and future planning. As you ponder this choice, remember that the right answer hinges on your individual needs and goals. Don’t hesitate to seek advice from estate planning professionals who can tailor their guidance to your unique situation. In the world of estate planning, being well-informed is your best strategy for protecting your legacy and ensuring your property is passed on according to your wishes. As always, if I can be of any help, reach out here.