Why you should consider putting your house into a trust

A plan for what will happen to your home after you die might not be on your top 10 list of fun things to think about, but it’s important, nonetheless. The probate process ensures your assets are distributed according to your will. Or, if you died without a will, according to your state’s inheritance laws. But this can be a lengthy and costly ordeal.

What is a property trust?

A property trust is a legal entity that allows property to be passed from the person who created the trust (the grantor) to the person they want to inherit their property (the beneficiary). A trustee oversees the trust and manages the assets in the trust on behalf of the beneficiary, according to the grantor’s instructions.

Once you understand what a property trust is, the next step is discovering why it can be a good idea to put your house into a trust and how this process works.

Why put a house in a trust?

The main benefit of putting your house in a trust is to bypass probate when you pass away. All your other assets, regardless of whether you have a will, will go through the probate process.

Probate in real estate is the judicial process that your property goes through when you die. During this process, your assets will pay any debts or taxes you owe, and then the rest of your property will be distributed according to your will. If you don’t have a will in place, your property will be distributed according to your state’s laws regarding intestate succession.

Probate can be a lengthy process. Simpler estates might be completed in just a few months, but large estates or complex situations might have a probate process that lasts as long as a year or more. If your will is contested, it can last even longer. It can also be expensive when you factor in various court fees, legal expenses and administrative costs.

If you’re weighing whether to put your house in a trust, make sure to consider how the process will affect your ability to alter your current mortgage. It can be difficult to change your mortgage terms by refinancing after you’ve put your home in a trust. If you might benefit from a loan refinance, consider applying and seeing what options are available before you begin the legal process of putting your home in a trust.

How does putting a house in a trust work?

When you put an asset, like a house, into a trust, you’ll typically name yourself as the trustee (if it’s a living, revocable trust, keep reading to learn more). You’ll also name a successor trustee who’ll take over when you pass away.

At that point, your chosen trustee will be responsible for following the instructions of the trust and distributing the assets in the trust to your beneficiaries. It can give you peace of mind knowing that ownership of your home will be passed to the person you designate as soon as you pass away (or under whatever conditions you stipulated in the trust agreement). The process also helps your beneficiary avoid a drawn-out legal process first.

Do you need a trust if you have a will?

If you already have a will, should you set up a trust? It really depends on your needs and the needs of your family. Generally, a trust is a faster, more efficient way to get your assets to your heirs but setting up a trust is often more expensive than creating a will.

Well-planned estates often utilize both trusts and wills. You might choose to put just a few vital assets, such as your house, in a trust and have everything else be decided by your will. This can help ensure a speedy transfer for your most important assets while the rest of your estate goes through the normal probate process.

Types of trusts for estate planning

There are many types of trusts, but the most important ones to understand as you approach estate planning are “revocable” and “irrevocable” trusts.

Revocable trust

A revocable trust, sometimes referred to as a living trust, is one that can be revoked or changed at any time. During your lifetime, you’re free to make changes to the trust or terminate it completely.

With a revocable trust, you’ll typically act as your own trustee and name someone else to become trustee upon your death or incapacitation. While you’re alive, you have control over the assets in the trust.

When you die, a revocable trust becomes irrevocable, and your successor trustee will take control and manage the trust according to your instructions. Revocable trusts are generally still subject to estate taxes and won’t protect your assets from creditors.

Irrevocable trust

An irrevocable trust can’t be changed or terminated after it’s been executed. With this type of trust, you forfeit ownership of any assets in the trust and the trustee takes control of these assets.

Because you no longer own the asset, it’s no longer part of your estate and generally won’t be subject to an estate tax or vulnerable to your creditors. Though that might seem like a positive, it’s important to consider the full implications of no longer legally owning the assets you put into the irrevocable trust.

If you’re thinking about putting assets into this type of trust, you might want to first consult an attorney.

How to put a house in a trust

If you’re interested in putting your house into a trust, there are a couple of initial steps you’ll need to take in order to start this process.

1. Create a revocable living trust

If you want to hold your property in a trust, you’ll first need to create one. To create a revocable, living trust, you’ll need to choose a successor trustee who’ll take control of the trust once you pass away. You’ll also need to name your beneficiaries.

You can choose anyone to be your successor trustee, but just be sure they’re someone you can count on. If your estate is fairly complex, you might choose an attorney, trust company or other professional to be your successor.

2. Prepare your trust agreement

You’ll then prepare your trust agreement, which is a document outlining the details of the trust. You can find standard trust agreements online, or you can ask your lawyer to create the documentation. For the trust to be valid, you’ll have to sign it in front of a notary public.

3. Fill out a new deed

To move your home into the trust, you’ll need to fill out a new deed. You can typically find state-specific property deed forms online, or you can have your attorney complete this process for you. This document will also need to be signed in front of a notary public before you record it with your county recorder or clerk’s office.

Should I put my house in a trust?

Still not sure whether to put your home in a trust? Let’s look specifically at some of the pros and cons of choosing this option.

Advantages of putting your home in a trust

The main benefit of putting your home into a trust is avoiding probate. Placing your home in a trust also keeps some of the details of your estate private. The probate process is a matter of public record, but the passing of a trust from a grantor to a beneficiary is not.

Putting your home in a trust can also help you avoid a multistate probate process. For example, if you own a primary residence in Colorado and a vacation home in Florida, your Florida property will need to go through that state’s probate process while the rest of your estate goes through the Colorado probate process.

That means the executor of your estate will need to handle two probate processes. By putting the Florida house in a living trust, however, you can save your executor this extra work.

Disadvantages of putting your home in a trust

Whether it makes sense for you to put your house into a trust is largely contingent on your goals. Setting up a living trust – depending on how you do it and the assets you put into it – can be a complex and costly process.

Additionally, if the trust only holds your house, you’ll still have other assets that need to go through the probate process, so you can’t truly bypass probate completely. As we’ve already noted, putting your house into a trust can also make refinancing more difficult, so if you’re planning a rate-and-term or cash-out refinance soon, you might want to hold off on establishing your trust.

Do you need a trust if you have a will?

If you already have a will, should you set up a trust? It really depends. This depends on your needs, the needs of your family, your preferences, and your situation. Generally, a trust is a faster, more efficient way to get your assets to your heirs, but setting up a trust is often more expensive than creating a will.

The bottom line: Putting your house in a trust can make the inheritance process easier

Preparing for life after your death is never easy, but knowing you’ve made arrangements for your assets to be passed to your heirs once you’re gone can give you invaluable peace of mind.

Because estate and trust laws vary from state to state, it’s always a good idea to consult an attorney as you begin to create an estate plan.

Before moving forward in the legal process, be sure your mortgage loan is squared away. Refinancing may be an option you’ll want to consider before putting your house in a trust. Explore your refinance options to see what you qualify for or talk with one of our Home Loan Experts today.