“Putting your House in a Trust“
Trusts aren’t just for the uber-wealthy. Anyone with financial or physical assets may consider setting one up to make life a little bit easier for those you leave behind when you die. When you establish a trust, you determine how you would like your assets divided to your beneficiaries and under what terms. You then designate someone to manage the trust — whether it’s yourself, another family member, or a third party. Seems simple, however, there are many intricate details in creating a trust.
We can’t stress this enough — always enlist the help of a team of professionals to help you navigate the complexities of taxes and trusts. In the meantime, here are some reasons you may decide to put your home in a trust and how to do so.
Why Would you put your House in a Trust?
One of the main reasons you may place your home in a trust is so your family can avoid a lengthy and expensive probate process after you die. Without a trust, many of your assets go through probate and this could take a few months to a year at an estimated cost of 3% to 7% of the estate value.
A very important note is that probate costs and processes vary state to state so a place like California could be significantly more expensive than Georgia when thinking through potential probate costs.
However, beyond costs, some people consider that when your family is mourning your death, the last thing they want to deal with is any unnecessary financial or legal hurdles that could arise with probate processes.
To put your home in a trust, we strongly recommend working with a licensed estate attorney, as they’ll do most of the heavy lifting. But, to get the trust in place, determine who the beneficiaries will be (those who will receive some or all of your assets), how your assets will be divided among them and when, and who will be the trustee (the person responsible for carrying out your wishes).
If you assign yourself as the trustee — as is common with revocable living trusts — you may also appoint a successor trustee who will step in after you die or are no longer able to manage the trust.
What are the benefits of putting your house in a trust?
The biggest benefit is that your family can avoid probate, which can be lengthy and expensive. You may also wish to use a trust is you’re worried about a certain family member blowing through all their inheritance. A trust allows you to divvy up the amount of your estate as you wish — you can designate assets be directed for a specific purpose, or over a set period of time. This can be especially useful when beneficiaries of a trust are minor relatives and you want to protect how and when they would gain access to their inheritance.
Speaking of tricky family stuff, trusts can also protect your assets from beneficiaries’ creditors or loss from divorce settlements. You can direct where you want any remaining assets to go after a beneficiary’s death — this may be helpful for families with multiple marriages or blended families, and it may differ from what the courts would decide if the estate would have gone to probate.
What are the drawbacks of putting your house in a trust?
Putting your home in a trust creates a bit of work and financial burden initially. You’ll need to work with a professional (and pay them) to complete and file the proper paperwork. Plus, you may wish to add other assets to the trust as you acquire them. Otherwise, these assets will still be subject to probate. Also, depending on your situation, there could be an added expense after your death, as trusts must file tax returns.
How can you best navigate the trust process?
There are an incredible amount of nuances and situation-specific considerations when determining whether to put your home in a trust or whether to create a trust at all. For example, you’ll need to check with your title and homeowner’s insurance to make sure both will still be valid. And you need to make sure your county won’t reassess property taxes if they consider the home no longer your primary residence.
Additionally, laws and your financial situation may change and you’ll want to review your plan every few years to see if any changes should be made. Since every situation is different and has its own complexities, it’s important to work with a great team, including an estate attorney, a financial advisor, and to find a trusted real estate agent. They can ensure everything runs smoothly now, and after you pass. The reality is that your family members and beneficiaries will likely work closely with them when dealing with the estate after your passing, or selling your home.