For many families, the home is both a cherished place and a significant financial asset. Whether you want to protect it from probate, plan for incapacity, or manage how it’s passed to your loved ones, placing your house in a trust can be an effective strategy.
But what does it mean to put your property in a trust? How does it work, and what are the benefits and disadvantages of putting your house in one? This guide explains how using a trust can help protect your home, discusses the different types of trusts, and reviews potential drawbacks. By the end, you’ll have a better understanding of whether you should consider putting your home in trust as part of your estate plan.
What Is a Trust?
A trust is a legal entity that holds and manages the property or assets for the benefit of designated beneficiaries. The person who created the trust, called the grantor, transfers ownership of the house or other property into the trust. The trustee of the trust then manages the trust assets according to the terms of the trust agreement.
Using a trust provides flexibility and control over how property is distributed. The trust may also shield assets from certain risks, depending on its structure. Common trust types for real estate include:
Revocable Living Trusts
A revocable trust may be ideal if you want to retain control over the property during your lifetime. You can put a house into this type of trust and continue to manage it as the legal owner of the property.
Advantages of Putting a House in a Revocable Trust
- The main benefit of putting property in a revocable trust is to bypass probate, ensuring your home transfers directly to beneficiaries.
- It allows you to make changes to the trust or dissolve the trust entirely if your circumstances change.
- The person creating the trust often acts as the trustee, simplifying management during their lifetime.
Disadvantages of Putting Your House in a Revocable Trust
- Property in the revocable trust remains part of your taxable estate.
- It does not protect the house from creditors or lawsuits.
Irrevocable Trusts
An irrevocable trust may offer stronger protections but comes with stricter rules. When you transfer ownership of the house into an irrevocable trust, the trust becomes the new owner of the property. This type of trust requires relinquishing control of the assets within it, meaning the property is no longer considered yours.
Potential Benefits of an Irrevocable Trust
- Protects trust assets from creditors and lawsuits.
- Reduces estate taxes, as assets within an irrevocable trust are outside of the taxable estate.
- May help with Medicaid planning, as an irrevocable trust may be eligible to shield assets from Medicaid recovery.
Cons of Putting Your House in an Irrevocable Trust
- You cannot make changes to the trust without the consent of the beneficiaries and the trustee.
- You lose direct control over the property once it is transferred into the trust.
Benefits of Putting Your Home in a Trust
Placing your house into a trust can provide numerous advantages, depending on your estate planning goals.
Avoiding Probate
One of the primary benefits of putting property into a trust is to bypass probate. Probate is a public, court-supervised process that can be time-consuming and costly. A trust provides a more private and efficient way to transfer ownership of your house to your beneficiaries.
Planning for Incapacity
A trust can help you avoid complications if you become incapacitated. The trustee of the trust can step in to manage the trust provisions, ensuring that the home is maintained and bills are paid without court intervention. This is especially beneficial for older adults who may need assistance managing a trust due to health issues.
Control Over Distribution
Using a trust allows you to dictate how and when the property for the benefit of your heirs is distributed. For example, you can specify conditions under which the house may be sold or require it to remain in the family.
Asset Protection
For those seeking to shield their property from creditors or lawsuits, irrevocable trusts provide significant protections. However, these benefits come at the cost of relinquishing control of the property to the trust as well.
Disadvantages of Putting Your House in a Trust
While the advantages of putting a house in a trust are clear, there are also some cons of putting your house in one that you should consider.
Complexity and Costs
Setting up a trust requires legal expertise, and trust laws vary from state to state. The initial cost of creating and funding the trust (a process called funding the trust) and ongoing maintenance can be higher than other estate planning tools.
Limited Flexibility with Irrevocable Trusts
Once you place a house in an irrevocable trust, you can no longer make changes to the trust provisions without the agreement of the beneficiaries and the trustee. This loss of control may not be suitable for everyone.
Impact on Mortgages and Insurance
Transferring ownership of your house into a trust can impact existing mortgages or insurance policies. For example, some lenders may enforce a due-on-sale clause, requiring the loan to be paid off. Consulting with a trust attorney is essential to address these issues.
Steps to Set Up a Trust for Your Home
1. Evaluate Your Needs
Determine whether you should use a revocable or irrevocable trust based on your estate planning goals.
2. Work with a Trust Attorney
Trust laws can be complex, and working with an experienced attorney ensures your trust agreement is legally sound and tailored to your needs.
3. Transfer Ownership of the House into the Trust
The process involves preparing a new deed that names the trust as the owner of the property. This must be properly filed to ensure the trust is the legal owner of the property.
4. Maintain the Trust
Regularly review your trust to ensure it reflects your wishes and any changes in your life.
Why Work with the Law Firm of Benjamin Eckman
The Law Firm of Benjamin Eckman specializes in estate planning, including setting up trusts to protect your home and other assets. Our experienced team can guide you through the process, from creating the trust agreement to managing a trust effectively.
With offices in Union, Hackensack, and Wayne, New Jersey, we are well-versed in state-specific trust laws and can provide personalized solutions tailored to your goals.
Protect your family’s legacy today. Schedule a consultation with the Law Firm of Benjamin Eckman to discuss the potential benefits of placing your home in a trust.
Frequently Asked Questions
What are the disadvantages of putting your house in a trust?
While placing your house in a trust offers many benefits, such as avoiding probate and planning for incapacity, there are potential drawbacks:
- Costs: Setting up and maintaining a trust can be expensive, requiring legal and administrative fees.
- Complexity: Trust laws vary by state, and transferring ownership of your house into a trust involves legal procedures.
- Limited flexibility: Irrevocable trusts, in particular, restrict your ability to make changes after they’re established.
Consulting with a trust attorney can help you navigate these challenges and determine if a trust aligns with your goals.
Why use a trust instead of a will?
A trust provides several advantages over a will:
- Avoiding probate: A trust allows your property to pass directly to your beneficiaries, bypassing the lengthy and public probate process.
- Incapacity planning: A trust can help manage your assets if you become incapacitated, whereas a will only takes effect upon your death.
- Privacy: Unlike a will, which becomes part of public records, a trust keeps the details of your estate private.
However, a trust is not a one-size-fits-all solution. Depending on your estate’s size and complexity, a will may still play a role in your overall plan.
What happens to a trust when someone dies?
When the grantor of a revocable trust dies, the trust typically becomes irrevocable, and the successor trustee takes over management. The trustee distributes the assets according to the terms outlined in the trust agreement. Since the property in the trust avoids probate, beneficiaries usually receive their inheritance more quickly than through a will.
For irrevocable trusts, the process depends on the trust’s provisions and the trustee’s responsibilities, which continue after the grantor’s death.
What is the best trust to put your house in?
The ideal trust depends on your goals:
- Revocable living trust: Best for avoiding probate, maintaining control, and planning for incapacity.
- Irrevocable trust: Ideal for asset protection and minimizing estate taxes.
- Qualified Personal Residence Trust (QPRT): Useful for high-value homes to reduce estate tax exposure while allowing you to live in the house for a specified term.
