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Why You Should Consider Putting Your House Into A Trust

Molly Grace6-minute read

July 23, 2021

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Though it might not be fun to think about, it’s important to have a plan for what will happen to your home after you die. Though the probate process will ensure that your assets are distributed according to your will – or, if you died without a will, according to your state’s inheritance laws – this can be a lengthy and costly process.

Trusts aren’t just for those who have large estates. If you’re like the average homeowner, your house is likely your most valuable asset. Having a plan for that asset – and for the people who live in and rely on that asset or the people who are expecting to inherit that asset – can make life easier for your heirs after you pass away.

What Is A Trust?

A 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 pass their property to (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.

Sound kind of confusing? Here’s a simple way to think of it:

You have $20. You want to give that $20 to your daughter, Muriel, so that she can use it when she goes to the movies on Saturday. However, you don’t want to give it to her yet, because you know that she’ll spend it on something else if you give it to her before Saturday. You’re going to be pretty busy Saturday, and aren’t sure you’ll be around to give her the $20. So you decide to give the $20 to your sister, Martha, and ask that she holds into it until Saturday, at which point she would give the money to Muriel.

In this scenario, you are the grantor, Martha is the trustee and Muriel is the beneficiary. If, instead of giving the money to Martha, you held onto it to give to Muriel yourself, you would be both the grantor and the trustee.

If you were creating an actual, legal trust, there’d be more to the process, including creating a legal trust document and possibly enlisting the help of an attorney. More on that further down.

Why Put A House In A Trust?

The main benefit of putting your house in a trust is that it bypasses probate when you pass away. All of your other assets, whether or not you have a will, will go through the probate process.

Probate is the judicial process that your estate goes through when you die. During this process, your assets will be used to pay any debts or taxes you owe, and then the rest of your property will be distributed according to your will. If you died without a will, 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 those with large estates or complex situations might have a probate process that lasts as long as one or two years. If your will is contested, it can last even longer. It can also be expensive when you factor in all the various court fees, legal expenses and administrative costs.

When you put an asset into a trust, you’ll typically name yourself as the trustee (if it’s a living, revocable trust – keeping reading to learn more). You’ll also name a successor trustee who’ll take over when you die. 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 chosen beneficiaries. This 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), without your beneficiary having to wait to go through a drawn-out legal process first.

In addition to providing a plan for your home when you die, putting your house in a trust can also help protect this important asset in the event that you become incapacitated.

Do You Need A Trust If You Have A Will?

If you already have a will, should you also set up a trust? It 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, though it’s often more expensive to set up a trust than to create 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 leave everything else to 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.

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Types Of Trusts For Estate Planning

Though there are many different types of trusts, the two main categories you’ll need to understand as you approach estate planning are revocable and irrevocable.

Revocable Trust

A revocable trust, sometimes referred to as a living trust, is one that can be “revoked.” During your lifetime, you’re free to make changes to the trust or even 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 good thing, it’s important to consider the full implications of what it will mean for you to no longer legally own 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 consider consulting with an attorney.

How To Put A House In A 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 whoever you’d like to be your successor trustee, including a friend or family member. Just be sure they’re someone you, well, trust. If your estate is fairly complex, you might choose an attorney, trust company or other professional to be your successor.

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

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. Then, you’ll need to record the deed with your county recorder or clerk’s office.

Should I Put My House In A Trust?

Benefits Of Putting Your Home In A Trust

The main benefit of putting your home into a trust is the ability to avoid probate.

Additionally, putting your home in a trust keeps some of the details of your estate private. The probate process is a matter of public record, while the passing of a trust from a grantor to a beneficiary is not.

Having your home in a trust can also help you avoid a multistate probate process. For example, if you own a primary residence in Colorado, but also own 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 or not depends on your goals.

Setting up a living trust, depending on how you do it and what assets you put into it, can be complex and costly.

Additionally, if the trust only holds your house, you’ll still have other assets that will need to go through the probate process, so you can’t truly bypass probate completely.

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 that you’ve made arrangements for your assets to be passed to your heirs upon your death 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.

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Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.