Planning for what will happen to your home after you pass away may not be pleasant, but it is crucial nonetheless. The probate process ensures that your assets are distributed according to your will, or if you do not have one, according to your state's inheritance laws. However, this can become a lengthy and costly ordeal.

It is essential to note that property trusts are not only available to those with large estates. If you are like most homeowners, your house is likely your most valuable asset. Therefore, having a plan for your property and the individuals who reside in it and expect to inherit it will make life easier for your heirs upon your passing.

 

What Is A Property Trust?

 

A property trust is a legal entity that enables the transfer of property from the grantor, who creates the trust, to the beneficiary of their choice. To oversee the trust and manage trust assets, a grantor appoints a trustee to act on behalf of the beneficiary.

What Is The Purpose Of Putting A Home In Trust?

 

Putting your house in a trust can help bypass the probate process when you pass away. This process involves all your other assets, regardless of whether you have a will. Probate is a legal process for your property when you die. 

During this process, your assets will pay off any debts or taxes you owe. Afterward, any remaining property will be distributed under your wishes as stated in your will.

If you don't have a will, the state's intestate succession laws determine how your property is distributed. Probate can be a lengthy process, especially for complex situations or large estates, and it can also be costly.

Putting your home in a trust helps avoid probate and provides a plan for your home when you pass away. Moreover, this process can protect your house if you become incapacitated. However, before deciding to put your house in a trust, consider how it can affect your ability to change your current mortgage. 

Refinancing your mortgage can be challenging after you've established a trust. Therefore, it's advisable to investigate refinancing options before beginning the legal process of putting your home in a trust.

 

What Is The Process Of Putting A House In A Trust Work?

 

If you want to protect your assets, such as a house, putting them in a trust is a common practice. For a living, revocable trust, you can name yourself the trustee and choose a successor trustee to take over when you pass away. 

This chosen trustee will then be responsible for carrying out the trust's instructions and distributing assets to your beneficiaries. 

This can provide peace of mind, as your home ownership will be transferred to your designated person following your passing (or as per the trust agreement). Moreover, this process can save your beneficiary from a lengthy legal procedure.

 

Is a Trust Necessary If You Already Have a Will?

 

When deciding whether or not to set up a trust, it's essential to consider your individual needs and your family's needs. While a trust can be a faster and more efficient way to distribute your assets to your heirs, it can also be more expensive than creating a will.

Many well-planned estates incorporate both trusts and wills. 

You may place only a few of your most crucial assets, such as your home, in a trust and leave the rest handled by your will. This can ensure that your most important assets are quickly transferred. At the same time, the rest of your estate goes through the probate process as usual.

 

Different Types of Trusts for Estate Planning

In terms of estate planning, it's essential to clearly understand the two primary types of trusts: revocable and irrevocable.

 

Revocable Trust

A living trust, also referred as a revocable trust, can be changed or terminated by the person who created it during their lifetime. Typically, the trust's creator acts as their trustee and designates someone else to become trustee upon death or incapacity. This allows the creator to maintain control over the trust assets while they are alive. 

Upon the creator's death, the trust becomes irrevocable, and their designated successor trustee will take over management of the trust according to the creator's instructions. It is important to note that revocable trusts are still subject to estate taxes and do not provide protection from creditors.

 

Irrevocable Trust

Once an irrevocable trust is executed, it cannot be altered or terminated. By creating this type of trust, you transfer ownership of the assets to the trustee who manages them.

Since you no longer possess the assets, they are not considered part of your estate. They are typically not subject to estate taxes or accessible to creditors. However, weighing the consequences of relinquishing legal ownership of the assets you place in the irrevocable trust is crucial.

If you're contemplating setting up this type of trust, it's advisable to seek legal counsel beforehand.

Steps to Buy a House in Trust

When engaging in estate planning with trusts, there are crucial steps for revocable and irrevocable options.

Decide on the Amount of Control You Desire

To begin, determine the level of control you desire over the assets in the trust. This will aid in selecting either a revocable or an irrevocable trust. 

It's essential to address whether the home can be sold after your passing and the protocol if you become incapacitated. Moreover, assess the value of your estate, including property and other assets, to evaluate potential inheritance tax implications.

Seek Assistance From Professionals

It is recommended that you locate a financial advisor and an estate planning attorney who is well-versed in your state's laws and inheritance tax regulations. These professionals have their areas of expertise, and you will require both to ensure that your assets are distributed correctly. 

According to experts, one of the most common errors people commit is meeting with their financial advisor and attorney individually and later discovering issues after the legal documents are drafted.

 

Take Into Account the Costs

Establishing a trust with a lawyer can cost between $1,500 and $3,000, regardless of whether it's revocable or irrevocable. However, the fees may vary based on the complexity of the work required. Additionally, the financial advisor's fees will depend on their professional credentials and time spent on the task.

Suppose you appoint a bank or law firm as the trustee instead of doing it yourself. In that case, you'll need to pay maintenance fees typically 1% or more of the trust's assets yearly.

 

Bottom Line

Purchasing and managing a home through a trust can be more complex and costly than the traditional way. But, it could offer several benefits depending on your trust type. 

These advantages include better control over the home's fate upon your passing, lesser estate taxes, and safeguarding against financial responsibility in case of legal action. It's crucial to seek expert guidance to guarantee that the trust is set up accurately and according to your preferences.