Deciding on the best way to protect your estate can be challenging. You may have heard that trusts are an excellent way to protect your home and other assets, but you have probably never created a trust. So, when should you put your house in a trust?
What Is a Trust?
A trust is a tool used in estate planning, like a will, to pass on money and property after death. A trust is simply a legal construct that protects wealth, property, possessions, and other assets for your future heirs. It can also help pass some assets before death.
There are two types of trusts, revocable and irrevocable trusts.
Revocable Trusts
Revocable trusts are also called living trusts. It is a type of trust that you can cancel at any time. The grantor of a revocable trust is both the beneficiary and the trustee. It can provide flexibility and income to the grantor. The earned income can be distributed to the grantor throughout the life of the trust. At death, its property transfers to the trust’s beneficiaries.
The flexibility of the revocable trust is one of the most appealing features of this type of trust. The grantor can remove assets, change the trust’s beneficiaries, or terminate it altogether.
Revocable trusts also allow beneficiaries to avoid conservatorship proceedings and probate court.
One downside of revocable trusts is their upfront cost. They also require several steps to fund. Having a revocable trust does not imply that a will is not needed.
Irrevocable Trusts
Irrevocable trusts cannot be changed once they are created. Whatever assets the grantor places inside an irrevocable trust, they cannot be removed, despite the reason. The only way to modify, amend or terminate an irrevocable trust is with the permission of all of the named beneficiaries.
If the grantor changed their mind and wished to exclude a current beneficiary from the trust, that beneficiary could stop the grantor from doing so by not agreeing to the change. Sometimes a court order can allow the trust to be modified, but this should not be relied upon. Additionally, the exact rules on irrevocable trusts differ from state to state.
The benefits of an irrevocable trust are:
- They can help you access government benefits.
- They can help you protect assets.
- They can minimize your estate taxes.
Why Is a Trust a Smart Move for Homeowners?
One of the most sought-after benefits of trusts is to avoid probate. The public probate process opens up your estate’s worth for anyone to see. Putting your assets into a trust prevents this information from going public during probate. A trust can also transfer ownership of a house faster than if the house were to move through probate.
If you are debating whether transferring your home or other properties into a trust is the right decision for your estate, the trust attorneys at Bunch & Brock can help.
When Should You Consider Creating a Trust for Your Home?
A will is perfect for smaller assets, like a treasured bedroom furniture set. But a trust may be a valuable addition to your will if you have assets like a home, vacation properties, investment properties, or an investment portfolio.
By utilizing a trust, you can save your spouse, children, or other beneficiaries from the expensive probate fees, which can total up to three percent of your home’s value.
If you have properties in multiple states, your beneficiaries will need to deal with the different probate laws of each state. They will also need to determine new fee structures if the property is left in a will. This generally means hiring an attorney in each state where you own property. Your beneficiaries will then need to travel around the country to attend court dates.
A trust can cut out most of these headaches.
Can You Put a House With a Mortgage In a Trust?
Yes, even if you still owe a mortgage on your home, it can still be placed into a trust. The revocable trust is an estate planning tool that people with mortgages regularly still take advantage of.
What Are the Advantages & Disadvantages of Putting a House in a Trust?
If you are considering a trust, you are likely concerned about the potential advantages and disadvantages of putting a house in a trust.
Advantages of Putting a House in a Trust
There are several advantages of placing your house in a trust. If you are unsure whether this is the right decision, a trusts lawyer can answer your questions.
Protection Against Future Incapacity
If you become ill and cannot handle your finances, a living trust can help protect your property. Your trustee can manage the trust and help protect your home. If you are married, your spouse can act as the trustee.
It May Save Money on Estate Taxes
A well-designed trust can minimize significant taxes. In some cases, a trust can help an estate avoid taxes entirely. A trusts attorney can provide more information on your case.
It Can Avoid Probate
Probate can make your private financial information public; it can also announce who your beneficiaries are. Trusts can keep your information private while speeding up the home’s transfer to its new beneficiary.
Probate can also be expensive, with fees like:
- Taxes
- Executor fees
- Legal fees.
Asset Protection
One of the most vital advantages of an irrevocable trust is its protection from creditors. Neither creditors nor the Medicaid estate recovery program can go after the assets in an irrevocable trust. For many, this advantage alone is the deciding factor in creating a trust.
Disadvantages of Putting Your House in a Trust
Trusts also have several disadvantages that you should be aware of.
Trusts Can Cost More to Maintain
Creating and transferring your house into a trust is more costly than a will. However, in the end, it may be the less expensive option.
Your Other Assets Are Still Subject to Probate
Even if you move your house into a trust, your other assets that remain outside the trust are still subject to probate. You could add all or some of your other assets into the trust. However, this can become complex.
Trusts Are Complex
You will almost certainly want to hire a skilled trusts attorney to handle the transfer of your house title to the trust. This means the trust owns the property, which requires more record-keeping. Still, a trust is usually significantly less costly and time-consuming compared to the probate process.
Contact Bunch & Brock Attorneys at Law
We understand estate planning and the laws surrounding trusts. A trust is not the right decision for everyone. However, we would be happy to meet with you and provide honest feedback on your situation and the interesting options for your estate. Contact Bunch & Brock today or give us a call at 859-254-5522.
