When is it a Good Idea to Have Your Home in a Trust?
If you’re considering putting your home into a trust, here’s an article to help you become familiar with how a trust works and why it might be a good option for your situation. There are several great reasons to choose a trust that don’t require millions of dollars in assets or real estate. While many people choose to transfer their real estate, belongings and money using their last will and testament, there are situations where using a trust might be more beneficial.
What is a trust?
A trust is a legal arrangement where a person can place their real estate assets, money and other belongings. When you put your assets into a certain type of trust, it’s similar to giving your belongings to a fictitious person. Depending on the type of trust, it will have it’s own ID number and will essentially own the assets the grantor gave to the trust.
How is a trust different than a will? Both of these documents allow you to specify who receives your belongings after you pass, however, a will requires the assets to pass through probate in order to be transferred. Avoiding probate is the most common reason people choose a trust over a will.
What is probate?
Probate is a legal process that takes place after a person has died in order to transfer assets, such as a home and the belongings inside. It involves the use of lawyers, lots of paperwork, and public court appearances. The probate process includes proving the will is valid, paying remaining debts and taxes, having any property appraised and taking inventory of the deceased person’s belongings. It can be tedious, lengthy and very costly. It’s also done in a public setting, whereas most dealings with trusts are done in private. For most people, the greatest benefit of using a trust is that it allows beneficiaries to avoid this entire process. The transfer of a home or other assets is relatively quick and easy with the use of a trust.
What are the benefits of putting my home in a trust?
Why put your house in a trust? As mentioned, the number one reason people put their homes in a trust is to avoid probate. When a person whose home is in a trust passes away, the process for the heirs to take possession of the property is simplified and done in a private setting, rather than court. Another similar benefit to having your home in a trust is in the event that a person becomes unable to care for the property or incapacitated and unable to make decisions, the real estate is properly handled.
Some other reasons people choose a trust over a will include that a trust can be much more specific in how and when assets and real estate are delivered to the beneficiaries. Putting your home in a revocable trust can also reduce your taxable estate, which has the potential to qualify you for Medicaid. An irrevocable trust also provides asset protection from creditors or the Medicaid estate recovery program. Trusts can additionally help you pass on your assets or real estate before the event of death.
What’s the difference between revocable and irrevocable trusts?
There are two main types of trusts — revocable and irrevocable. A revocable trust, also known as a “living trust”, can be revoked or dissolved at any time. It also does not receive a separate tax ID number, but instead is set up using the grantor’s social security. If you choose to place your home in a living trust, you name yourself as the trustee, or manager of the trust, because you’re still living. This provides a bit more flexibility.
An irrevocable trust is given its own tax ID number and is never meant to be reversed by the grantor. Someone else is listed as the trustee of your assets and is responsible for handling the affairs of the trust in the event of your death or incapacity.
Can a home in a trust still be sold? In both cases, a home can be sold depending on the terminology listed in the trust. Every situation is unique, which is why it’s always best to speak with a knowledgeable attorney if you’re considering putting your home in a trust.