In addition to providing you with more control over the distribution of your assets than a will does, a trust may also help you become eligible for Medicaid.
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While many people use their last will and testament to distribute their possessions and money after they pass away, some people would find it more advantageous to use a trust to distribute their home or other valuable assets.
You can place your money, belongings, and other assets into a trust so that you or your future heirs can use them in the future. A trust isn’t just for rich people. Trusts can give you more control over who inherits your assets and money after you pass away than a will can. Trusts, as opposed to wills, have the ability to specify how and when your beneficiaries will receive the assets. A trust may also be helpful if you wish to transfer certain assets before you pass away.
One of the primary reasons people place their home in a trust is that, unlike bequests made through a will, which must go through probate, assets placed in a trust do not pass through the probate process after death. Anyone can view what was in your estate when you passed away, how much it was worth, and who received your belongings through the public probate process. It is also possible to transfer ownership of your home more quickly by using a trust rather than a will.
Generally speaking, you can still sell your home after putting it into a trust, depending on the precise wording of the document that created the trust. Even if you’re still making mortgage payments, you can transfer your home into a trust because doing so won’t result in a “due on sale” clause. By lowering your taxable estate, putting your home in a specific kind of trust may also help you become eligible for Medicaid.
Understanding the Benefits and Considerations of Putting Your House in a Trust
When planning your estate, you have various options for ensuring your assets are distributed according to your wishes after your passing. While a will is a common tool, it’s not the only one available. Trusts offer an alternative with unique advantages, particularly when it comes to managing the transfer of your house.
This article delves into the reasons why you might consider putting your house in a trust, exploring both the benefits and potential drawbacks of this approach. We’ll also address common questions related to trusts, including their differences from wills and the types of trusts available.
Benefits of Putting Your House in a Trust
- Avoid probate: This is a significant advantage, as probate can be a lengthy and costly process. By placing your house in a trust, it bypasses probate entirely, ensuring a smoother and faster transfer to your beneficiaries.
- Maintain privacy: Unlike wills, which become public record, trusts remain private. This can be beneficial if you wish to keep the details of your estate distribution confidential.
- Avoid multistate probate: If you own property in multiple states, putting your house in a trust can simplify the process, as it avoids the need for probate in each individual state.
- Control distribution: Trusts allow you to specify the conditions under which your beneficiaries will receive the property. You can set age restrictions, establish specific uses for the property, or even designate multiple beneficiaries to receive it in stages.
- Transfer property before death: Unlike a will, which only takes effect after your passing, a trust can be structured to allow you to transfer ownership of your house while you’re still alive. This can be helpful for estate planning purposes or if you need to qualify for Medicaid.
- Protect assets from creditors: Certain types of trusts, such as irrevocable trusts, can shield your assets from creditors, including nursing homes.
Drawbacks of Putting Your House in a Trust
- Cost: Setting up and maintaining a trust can be expensive, especially if you hire an attorney to create the legal documents.
- Limited control after transfer: Once you transfer your house to an irrevocable trust, you relinquish control over it. You cannot sell it or make changes to the trust without the consent of the trustee.
- Potential tax implications: Depending on the type of trust and the value of your estate, there may be tax implications to consider.
Do You Need a Trust if You Have a Will?
A will is still a valuable estate planning tool, even if you have a trust. A will can be used to distribute assets that are not held in the trust, such as bank accounts or personal belongings. Additionally, a will can designate guardians for minor children or specify funeral arrangements.
Should You Put Your House in a Revocable or Irrevocable Trust?
- Revocable trust: This type of trust allows you to retain control over the assets and make changes to the trust document during your lifetime. However, it offers less protection from creditors and may not be as effective for tax purposes.
- Irrevocable trust: This type of trust relinquishes control over the assets once they are transferred. However, it offers greater asset protection and can be more beneficial for tax purposes.
Putting your house in a trust can be a wise decision for many individuals, offering numerous advantages in terms of avoiding probate, maintaining privacy, and controlling the distribution of your assets. However, it’s crucial to weigh the potential drawbacks, such as cost and relinquishing control, before making a decision. Consulting with an estate planning attorney can help you determine if a trust is right for you and guide you through the process of creating one.
How to put a house in a trust
Here’s how to include your home and other real estate in a trust that you’ve established by drafting a trust document that names your beneficiaries and specifies how they will get the property.
- Prepare a new property deed. You can duplicate the previous one and make the required updates, such as adding the new owner’s trust. Typically, the format looks something like this: “Jane Smith, trustee of Smith family trust, trustee of the [trust name] “.
- Get it notarized. To authenticate the deed, you and any other homeowners must sign it in front of a notary public (for a nominal fee).
- File the deed with the proper office. Putting your house in a trust ends with you recording the property transfer with your local county clerk’s office, which is where local property records are kept.
You can follow the same general procedures to move property out of the trust.
Reasons not to put your house in a trust
You might decide against putting your home or other assets into a trust for the following two main reasons:
- The expense of creating and upholding a trust is something you don’t want to incur.
- You must still wait for the probate process to be completed on other assets.
The price to set up a trust depends on your location and the specifics of your arrangement, but if you work with an estate planning attorney, the cost of drafting the legal documents for a basic trust will probably be $300 or more. It could cost you $1,000 or more to create a larger or more complex trust, such as one that includes your whole estate or places more limitations on when beneficiaries can access trust assets.
You have to pay to keep your trust after you’ve built it. While maintenance won’t be a big expense for most people, it could be if you hired a trustee—a person or organization that looks after your trust and its assets.
In addition, if you still intend to have other assets go through probate—particularly valuable assets that might cause the process to drag on or result in a contested will—the expense of a trust might not be justified for you. However, it might be worthwhile to use a trust specifically for your home if it’s the only significant asset you own.
Recall that in the event that you utilize a testamentary trust, meaning that the trust is established by your will, your assets will still pass through probate prior to being placed into the trust.
A transfer-on-death deed is another way to give someone your house. This less expensive estate planning strategy can still assist you in avoiding probate.
Why It’s a Good Idea to Put Your Home in a Trust
Why do people put a house into a trust?
There are two main reasons why people put a house into a trust. The first reason is that they want their family to be able to inherit their home without having to go through the long, stressful, and expensive probate court process. Instead, their home can be transferred to their heirs in a private setting shortly after their death.
What happens if you put a house in a trust?
Probate can be a long, expensive and involved process, which can delay beneficiaries from taking possession of assets you want them to have. When you put your home in trust, your trustee can likely skip probate and your beneficiary can take possession of the house faster, without the probate court getting involved.
Should I put my house in a living trust?
Any high-value assets that you own can be added and managed in a Living Trust, including real estate. The leading reason why someone should put their house in a Trust is to avoid Probate Court. But keep reading to discover further benefits and to understand the probate process.
How do I put a house in a trust?
Consult with an estate planning attorney before placing your home in a trust. While specific trust laws vary from state to state, putting a house in trust involves these three basic steps: Decide what type of trust you’d like to have. For example, you may want the trust to be revocable or irrevocable. Choose your trustee (s) and beneficiaries.