The decision of whether or not to put your house in an irrevocable trust is a complex one that should be made after careful consideration of your individual circumstances. There are both pros and cons to consider, and the best option for you will depend on your specific goals and needs.
What is an Irrevocable Trust?
An irrevocable trust is a legal document that allows you to transfer ownership of your assets to a trustee, who will then manage those assets according to the terms of the trust. Once you create an irrevocable trust, you can no longer change the terms of the trust or take back control of the assets. This means that you are giving up a significant amount of control over your assets, so it is important to be sure that this is the right decision for you.
Benefits of Putting Your House in an Irrevocable Trust
There are several potential benefits to putting your house in an irrevocable trust. These benefits include:
- Avoiding probate: When you die, your assets will be distributed according to the terms of your will. However, if your assets are held in an irrevocable trust, they will not be subject to probate. This can save your heirs a significant amount of time and money.
- Protecting your assets from creditors: If you are sued or declared bankrupt, your creditors may be able to seize your assets to satisfy their claims. However, if your assets are held in an irrevocable trust, they will be protected from your creditors.
- Qualifying for government benefits: Some government benefits, such as Medicaid, have asset limits. If you put your house in an irrevocable trust, it will not count towards your assets for the purposes of these programs. This may make you eligible for benefits that you would otherwise not be able to receive.
- Reducing your estate taxes: If your estate is large enough, you may be subject to estate taxes. However, if you put your house in an irrevocable trust, it will not be included in your taxable estate. This can save your heirs a significant amount of money.
Drawbacks of Putting Your House in an Irrevocable Trust
There are also some potential drawbacks to putting your house in an irrevocable trust. These drawbacks include:
- Loss of control: Once you create an irrevocable trust, you can no longer change the terms of the trust or take back control of the assets. This means that you are giving up a significant amount of control over your assets.
- Tax implications: Irrevocable trusts can have complex tax implications. You will need to work with an attorney and a tax advisor to ensure that you understand the tax implications of creating an irrevocable trust.
- Cost: Creating and maintaining an irrevocable trust can be expensive. You will need to pay legal fees, trustee fees, and other expenses.
Should You Put Your House in an Irrevocable Trust?
The decision of whether or not to put your house in an irrevocable trust is a personal one. There is no right or wrong answer, and the best option for you will depend on your individual circumstances. If you are considering putting your house in an irrevocable trust, it is important to talk to an attorney and a tax advisor to discuss the pros and cons and to make sure that you understand the implications of this decision.
Frequently Asked Questions
Q: What is the difference between a revocable trust and an irrevocable trust?
A: A revocable trust is a trust that you can change or revoke at any time. An irrevocable trust is a trust that you cannot change or revoke once it is created.
Q: Can I still live in my house if I put it in an irrevocable trust?
A: Yes, you can still live in your house if you put it in an irrevocable trust. The trust will own the house, but you can continue to live in it as long as you are alive and well.
Q: What happens to my house when I die if it is in an irrevocable trust?
A: When you die, the house will be distributed according to the terms of the trust. The trustee will be responsible for distributing the house to the beneficiaries of the trust.
Q: Can I sell my house if it is in an irrevocable trust?
A: Yes, you can sell your house if it is in an irrevocable trust. However, the trustee will need to approve the sale and the proceeds from the sale will be distributed according to the terms of the trust.
Q: How much does it cost to create an irrevocable trust?
A: The cost of creating an irrevocable trust will vary depending on the complexity of the trust and the attorney’s fees. However, you can expect to pay several thousand dollars to create an irrevocable trust.
Q: Do I need an attorney to create an irrevocable trust?
A: Yes, you should always have an attorney help you create an irrevocable trust. An attorney can help you draft the trust document and ensure that it meets your needs.
Q: What are the tax implications of creating an irrevocable trust?
A: The tax implications of creating an irrevocable trust can be complex. You should talk to a tax advisor to discuss the tax implications of creating an irrevocable trust.
Q: Can I change the terms of an irrevocable trust?
A: No, you cannot change the terms of an irrevocable trust once it is created.
Q: Can I take back control of the assets in an irrevocable trust?
A: No, you cannot take back control of the assets in an irrevocable trust once it is created.
Q: What happens if the trustee of my irrevocable trust dies?
A: If the trustee of your irrevocable trust dies, a new trustee will be appointed according to the terms of the trust.
Q: What happens if I become incapacitated and can no longer manage my own affairs?
A: If you become incapacitated and can no longer manage your own affairs, the trustee of your irrevocable trust will be responsible for managing your assets.
Q: Can I put other assets in my irrevocable trust besides my house?
A: Yes, you can put other assets in your irrevocable trust besides your house. You can put any type of asset in an irrevocable trust, such as cash, stocks, bonds, and real estate.
Q: What are the benefits of putting other assets in my irrevocable trust besides my house?
A: The benefits of putting other assets in your irrevocable trust besides your house include avoiding probate, protecting your assets from creditors, and reducing your estate taxes.
Q: What are the drawbacks of putting other assets in my irrevocable trust besides my house?
A: The drawbacks of putting other assets in your irrevocable trust besides your house include loss of control, tax implications, and cost.
Q: Should I put other assets in my irrevocable trust besides my house?
A: The decision of whether or not to put other assets in your irrevocable trust besides your house is a personal one. There is no right or wrong answer, and the best option for you will depend on your individual circumstances. If you are considering putting other assets in your irrevocable trust, it is important to talk to an attorney and a tax advisor to discuss the pros and cons and to make sure that you understand the implications of this decision.
Conclusion
The decision of whether or not to put your house in an irrevocable trust is a complex one that should be made after careful consideration of your individual circumstances. There are both pros and cons to consider, and the best option for you will depend on your specific goals and needs. If you are considering putting your house in an irrevocable trust, it is important to talk to an attorney and a tax advisor to discuss the pros and cons and to make sure that you understand the implications of this decision.
The Benefits Of A Revocable Trust Owning Your House
For the following reasons, people give a revocable trust ownership of their home:
- Avoid probate
- They have children under the age of 25
- They want maximum flexibility
Based on our observations, this is the main cause for homeowners to place their home in a revocable trust. Trust assets avoid probate. If you have ever been the executor of a family member’s estate after they passed away, you are aware of how difficult the probate procedure can be. Not to mention costly.
Let’s return to Mark as our example. They jointly own their home, and in their will, their two children are named as joint beneficiaries with equal rights to all of their assets.
Since the house is owned jointly and ownership automatically transfers to the surviving spouse upon the death of the first spouse, there is no problem. But the house is a part of the surviving spouse’s estate and will go through the probate process when they pass away. You typically try to avoid probate because the probate process:
- Is a costly process
- It delays the receipt of the asset by your beneficiaries
- Makes the value of your estate accessible to the public
In order to probate the estate, expenses include attorney fees, accountant fees, executor commissions, and appraisal fees. The fact that the process is court-driven is what causes the delays. To even begin the process, you must obtain testamentary letters from the court, and the courts must authorize the estate’s final filing. It is not unusual for the probate process to take up to six months to complete.
If a revocable trust owns your home, you can avoid going through the entire probate process. The house is moved from the trust’s name to the beneficiaries’ name following the death of the second spouse. Probate costs are avoided, and your beneficiaries can move into the home right away.
Children Under The Age of 25
Revocable trusts are utilized by parents with children under 25 to shield the younger generation from inheriting everything at an early age. If all you have is a will, and your parents die before your child turns eighteen, and they inherit a substantial amount from your life insurance, retirement accounts, and home, they might not make the best financial choices. We as financial planners have regrettably witnessed this occur: what if they decide not to attend college because they inherited a million dollars, only to spend it all in five years? It’s ugly.
Restrictions can be placed in place by a revocable trust to stop this from occurring. The trust agreement may specify that they will receive one-third of their inheritance at age 25, one-third at age 30, and one-third at age 35. However, the trustee may permit distributions for living expenses, medical costs, educational costs, and other purposes in the interim. There are countless options available, and these documents can be tailored to your specific requirements.
Since the grantor is not relinquishing the asset, the revocable trust provides them with the greatest flexibility. It’s not subject to probate, but it’s still a part of your estate. The trust’s beneficiaries, trustee, and features can all be changed at any time by the owners, who can also reclaim the asset.