How does having a trust benefit property owners?
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..jpg)
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.
In order to avoid probate court, your assets need to be placed into a living trust. This is 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.
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. 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, 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. 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. 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.
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.
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 passing assets to your loved ones after you’re gone.
Posted by Guy Amato on
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