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 the most fun thing 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.

Learning how to put a house in a trust can help you avoid probate and simplify the transfer of your property to your beneficiaries after you die.

How does putting a house in a trust work?

A trust is a legal arrangement where one person takes control of assets on behalf of beneficiaries. A trust allows you to avoid probate and specify in detail how your assets will be passed on to your beneficiaries.

There are three main parties involved:

• Grantor. Also known as the settlor or trustor, the grantor is tasked with creating the trust. The grantor could be yourself, a loved one, an organization, or a third party.
• Trustee. This is the person responsible for the assets that are held in the trust. Usually, a grantor is also the trustee during their lifetime.
• Beneficiary. A beneficiary is someone designated to receive the assets held in the trust.

Even if you have a will in place, you may still need a trust. A will outlines how you want your assets to be distributed when you pass. A trust, on the other hand, is the actual vehicle – or container – by which they're passed down.

Why put a house in a trust?

When you put a house into a trust, you can steer clear of probate. And because probate is public record, it can maintain the privacy of your estate. Putting a house in a trust gives you greater control of when, how, and to whom your assets will be distributed.

Types of trusts for estate planning

There are two main types of trusts.

Revocable trust

A revocable living trust is one that you can change at any time. You can switch up the beneficiaries, change trustees, or add your house, other property or assets in the trust at any time.

Irrevocable trust

When you put your assets in an irrevocable trust, you give up ownership of these assets. Once an irrevocable trust is set up, it's very hard to make changes. And while making an irrevocable trust can be complex, a major benefit is that the assets you place in it – including your house – are protected from creditors and lawsuits.

How to put a house in a trust

Let's look at the steps involved in putting a house in a trust. Knowing the ins and outs ahead of time can make for a smooth, hassle-free process:

1. Consult an attorney

Setting up a trust can be quite complicated. It's a good idea to hire an estate planning attorney or real estate attorney to help you create one. You'll want to find one who is experienced, focuses on estate planning, fits your needs, and is someone who you feel comfortable working with. To land one that is a good fit, you can get a referral from your network or read online reviews from longstanding, reputable sites.

2. Decide what type of trust you want

You'll need to choose between a revocable or irrevocable trust.

Revocable trusts are more common. If you would like the option to make changes to your trust, then you'll want to go with a revocable trust. But if you're comfortable with not making changes or needing to revoke your trust once it's created, then you might want to consider an irrevocable trust.

One key benefit of an irrevocable trust is that creditors can't go after the assets in it. It also is protected from lawsuits and estate taxes.

3. Choose your trustee and beneficiaries

As we've talked about, the trustee controls the trust and makes decisions about how to use or disburse its assets.

Beneficiaries are the individuals, organizations, or entities that will receive assets that are in the trust. When you set up your trust, you'll need to designate both a trustee and your beneficiaries.

4. Prepare your trust document

The next step is preparing a trust document. This can be done by using an online tool or platform, or by working with an estate planning attorney.

While a trust may not need to be notarized in front of a notary public to be legally valid, it's highly recommended. Getting a trust notarized adds a layer of protection and can ensure a financial institution's acceptance of the trust.

5. Transfer your property title

To transfer the home into the trust, you'll have to prepare and sign a new deed listing yourself as the current owner of the property and the trustee as the future owner.

To create a new deed, you can use an online service or hire an estate planning attorney. It's also a good idea to check with the county recorder to see how your deed must be formatted.

6. Update your insurance and mortgage information

Once you've changed the deed on your home, you'll need to update this information on your homeowners insurance to maintain proper coverage.

Pros and cons of putting your house into a trust

Being aware of the potential advantages and downsides of putting your house into a trust can help you make decisions on whether it's a wise move for you.

Advantages of putting your home in a trust

The benefits of putting your home in a trust include:

• Avoiding probate. As mentioned, probate can be expensive and time-consuming.
• Transfer your assets more quickly. Because you don't have to deal with probate and the directives on who, when, and how your assets will be distributed are clearly defined, your large assets (i.e., property, securities) will transfer far more quickly than if you didn't put your home in a trust.
• Keeping your estate private. Because probate is public record, a trust can help you keep details of your estate private.
• Protects your assets while you’re alive. Should you become incapacitated and unable to make decisions on your own behalf, a living trust keeps your assets under management.
• Additional asset protection. If you have an irrevocable living trust, your home and other assets are safeguarded from creditors, lawsuits, and estate taxes because the trust is the legal owner instead of you.

Disadvantages of putting your home in a trust

Putting your home in a trust also comes with a handful of potential downsides:

• It's a complex and costly process. Putting your home in a trust takes time – and money. It can cost anywhere from $1,000 to $3,000 to do this, although more complicated situations require a greater investment.
• It may not protect all your assets. Even if you have a trust, if the asset isn't transferred to your trust, it can be subject to probate.
• It can make refinancing more difficult. While it is possible to refinance a house that's in a trust, refinancing requires a few additional steps. Plus, you'll need the sign-off from the trustor.
• May not be able to make changes to the trust later. With an irrevocable trust, you won't be able to make any amendments to the trust down the line. If you do want to make changes, it can be extremely difficult.

How putting your house into a trust affects your mortgage

Putting your house in a trust doesn’t mean you're off the hook for repaying your mortgage. You're still fully responsible.

Some mortgages have an alienation clause (also known as a due-on-sale or due-on-transfer clause) that requires you to repay the remainder of the loan if you transfer the title.

But, under the federal Garn-St. Germain Act, passed in 1982, the loan acceleration clause doesn't apply to residential property transferred into a living trust. However, the borrower will need to remain a beneficiary and cannot transfer rights of the property.

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

Putting important, valuable assets like your house in a trust can make for a smoother, hassle-free inheritance process. It can protect your privacy, help avoid probate, and give you greater control of your assets. However, it's important to keep in mind that it can make refinancing more difficult. Before deciding, it's a good idea to weigh the pros and cons.

To make sure you have the best terms possible, look into refinancing your mortgage with Rocket Mortgage before putting your home into a trust.