Putting A House Into A Trust
The Pros And Cons Explained
Putting A House Into A Trust - Is It A Good Idea?
Over the past decade at Rochester Law Center, we’ve helped 1,000s of clients estate plan. Some of the most common questions we get asked are about living trusts. In this article, we’re going to cover some of the pros and cons of putting a house into a trust. Additionally, we’re going to answer some common questions about putting a house into a trust, who owns your home after putting a house into a trust, and what you can and can’t do with your property after it’s in your trust.
Putting A House Into A Trust Or Last Will And Testament?
Estate planning is about creating a custom plan to allow you to transfer your money, property, and assets to your family in the most efficient way possible. The two most common estate planning documents are the last will and testament and the revocable living trust.
Both of these documents let you specify which of your loved ones should receive your assets after you pass. However, with a last will and testament, your assets must go through probate court before your family can receive them. This can take months, sometimes even years if your will is contested in court.
On the other hand, a living trust avoids probate court. This means that your family can receive your money, property and assets in a matter of days or weeks after you pass instead of months or potentially years.
Putting A House Into A Trust - Why Do People Do It?
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.
The second reason deals with planning for incapacity. It’s a common misconception that estate planning only plans for death, but comprehensive estate planning plans for incapacity as well. When you create a living trust, you will name a successor trustee. This person is responsible for distributing your assets to your heirs after you die. They are also responsible for stepping in and managing the assets in your trust if you become incapacitated and can no longer communicate. By putting a house into a trust, you can ensure that one of your most important assets will be managed and taken care of by someone you trust in the event you become incapacitated.
Putting A House Into A Trust - How Does It Work?
In order to avoid probate court, your assets need to be placed into a living trust. This called funding the trust. When you create a living trust, you are known as the settlor or grantor, depending on what state you live in. When you set up the living trust, you also assign yourself as the trustee. The trustee is the person who has the right to manage all of the money, property, and assets that are placed inside of the living trust. By naming yourself trustee while you are living, you maintain the ability to manage all of the assets in your trust just like you do now. For example, if you plan on putting your house into a trust, you can still sell it at any time in the future.
Additionally, you will name your beneficiaries in your revocable living trust. Your beneficiaries are your loved ones that you want to inherit your money and property after you die. Usually this is a spouse, children, grandchildren etc.
Lastly, you will designate your successor trustee. Your successor trustee is the person who will take over management of your living trust after you die or become incapacitated. They will be responsible for settling your estate and distributing your assets to your beneficiaries after you die. Additionally, if you are putting your house into a trust, the successor trustee is the person who will manage your home, and any other assets you placed in the name of your trust if you become incapacitated.
In the next section we will talk about all of the additional benefits of putting a house into a trust.
Putting A House Into A Trust - What Are The Benefits?
As mentioned earlier, one of the biggest advantages of putting a house into a trust is that, unlike a will, a living trust allows you to avoid probate court. There are three main reasons why this is important.
First, probate can be very expensive.
Probate is the legal process through which the court ensures that, when you die, your debts are paid and your assets are distributed according to the law. Legal fees, executor fees, inventory fees (county taxes), and other costs have to be paid before your assets can be fully distributed to your heirs.
If you own property in other states, your family could face multiple probates, each one according to the laws in that state. We usually expect about 10% of your estate to be eaten up in probate court through legal fees, inventory fees, court costs etc. For smaller estates, the percentage can be much larger – sometimes leaving little behind for your loved ones.
These costs can vary widely, but we’ve had clients who had to pay tens of thousands of dollars throughout the probate process. In general, probate is much, much more expensive than doing some simple estate planning in advance.
Second, probate can take a long time.
The standard probate process takes a minimum of 5 months to complete. However, over the past decade we’ve experienced that it generally takes 9 months to a year to resolve simple cases (and several years for contested cases). We once represented a client whose Probate lasted for 8 years.
Third, probate is public.
Your family has no privacy. Probate is a public process, so anyone can see the size of your estate (often what you actually owned), who you owed debts to, who will receive your assets, and when they will receive them. The process invites upset heirs to contest your will and can expose your family to greedy creditors and potential fraudsters.
Keep Your Financial Matters Private
Since there is no probate court process when you have a living trust, there is no need to make your assets public. On the other hand, if your house is only included in a will, the will’s contents are made public when it is entered in probate court. Since the trust avoids probate, the contents of the transfer stay private. In general, the only people who will ever see the living trust, are the beneficiaries that you name. And even then, only after you pass.
If you become incapacitated during your life, then a living trust can protect your family from undergoing a conservatorship. A conservatorship is when a court-appointed guardian is given the authority to manage an incapacitated person’s financial matters for them.
This feature of a living trust is especially comforting to families in times of difficulty since they do not have to worry about going to court and requesting access to the incapacitated person’s finances. A revocable living trust gives the family one less problem to face when someone becomes incapacitated.
If the trust is set up as an individual trust, then the trustee can take over and manage the assets. If the trust is owned by a married couple, then the second spouse will usually step in as the acting trustee.
It is also prudent to have a durable power of attorney for finances in addition to a living trust to grant the new acting trustee the power to manage any property and finances outside of the trust.
Putting A House Into A Trust - What Are The Disadvantages?
While the benefits of putting a house into a trust greatly outweigh the drawbacks, it does have some additional complexities…
In order to make your living trust effective, you need to make sure that the ownership of your house is legally transferred to you as the trustee. Since your house has a title, you need to change the title to show that the property is now owned by the trust. To do this you need to prepare and sign a new deed to transfer ownership to you as trustee of the trust. In the end, a little bit of additional paperwork and record keeping is worth much more than the time and money that will be lost in probate, not to mention the stress that your family will have to go through to access your assets after you pass.
Accurate Record Keeping
Once you create a living trust you don’t need separate income tax records if you are both the grantor and the trustee. Any income you receive from property that you are holding in the trust will simply be reported on your personal tax returns. However, if you transfer property in or out of the trust, you need to keep accurate written records. This isn’t difficult, but it’s easy to forget if it has been a few years since you created your trust.
The advantages of putting a house into a Trust far outweigh the disadvantages. This is why it is one of the best, simplest, and most commonly used methods for avoiding financial disaster and your passing assets to your loved ones after you’re gone.
Now that we have talked about some of the major pros and cons of putting a house into a trust, we are going to answer some additional questions we get from clients about putting a house into a trust.
One of the main questions we get is…
Is Putting A House Into A Trust Difficult?
Putting a house into a trust is actually quite simple and your living trust attorney or financial planner can help. Since your house has a title, you need to change the title to show that the property is now owned by the trust. To do this you need to prepare and sign a new deed to transfer ownership to you as trustee of the trust.
Besides Putting A House Into A Trust, Are There Other Assets I Should Consider Putting Into A Trust?
Aside from putting a house into a trust, there are other assets you should consider titling in the name of the trust. Usually it’s best to include all real estate, stocks, CDs, bank accounts, investments, insurance and other assets with titles. Some people also include jewelry, clothes, art, furniture, or other assets in a one page assignment.
Will I Lose Control Of My Home When Putting A House Into A Trust?
Not at all, you keep full control of all of the assets in your trust. As Trustee of your trust, you can do anything you could do before – buy and sell assets, gift them away, mortgage them out, and you can still change or even cancel your trust altogether. That’s why it’s called a revocable living trust. You even file the same tax return. Nothing changes but the name on the titles.
How Do I Set Up A Living Trust?
If you need help putting a house into a trust and you’d like to set up a living trust, we can help. Over the past decade, we’ve helped 1,000s of clients set up all matters of living trusts, wills, powers of attorney, and estate plans. We’d be happy to answer any questions you have about whether a living trust is the right estate planning option for you. Just give us a call today at (248) 613-0007 to schedule your complimentary consultation.
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Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Chris Atallah is a licensed Michigan Attorney and the author of “The Ultimate Guide to Wills & Trusts – Estate Planning for Michigan Families”. Over that past decade, Chris has helped 1,000s of Michigan families and businesses secure their futures in all matters of Wills, Trusts, and Estate Planning. He has taught dozens of seminars across the State of Michigan on such topics as avoiding the death tax, protecting minor children after the parents’ death, and preserving family wealth from the courts and accidental disinheritance. If you have any questions, Chris would be happy to answer them for you – just call at 248-613-0007.