Understanding Trusts: A Comprehensive Guide to Putting Your House in a Trust

When it comes to estate planning, one of the most effective tools you can use is a trust. Trusts can simplify the process of passing your assets, including your home, to your heirs. They can also offer some tax advantages. However, there are upfront costs and other potential downsides to consider. Placing your house in a trust is a significant decision that may or may not align with your long-term goals. Here’s what you need to know to decide if it’s the right move for you.

What Is a Trust?

A trust is a legal arrangement designed to hold assets on behalf of beneficiaries. These assets can include real estate, personal property, investment accounts, bank accounts, and businesses. While the assets technically belong to the trust, if you opt for a revocable trust, you can make changes at any time.

Trusts are not just for the wealthy. Anyone can use them to ensure a smooth transfer of wealth from one generation to the next. Trusts also have potential tax benefits.

Important Trust Terms to Know:

• Grantor: The person who establishes the trust and decides how assets are to be managed and distributed.
• Trustee: The person who manages the trust according to the grantor’s wishes.
• Beneficiary: The person, group, or organization that will eventually receive trust assets.

How Does Putting Your House in a Trust Work?

Placing your house in a trust can give you more control over how and when your home is transferred to your beneficiaries. While you could use a will to clarify who will inherit your home after your death, your loved ones will have to wait for your will to be validated through the probate process. During this time, a probate court will confirm the legitimacy of your will and authorize your chosen executor to fulfill their duties.

This process can delay the transition of your home to your beneficiaries—especially if your will is contested. One upside of having a trust is that you can likely avoid probate. That can allow your home to quickly change ownership.

Types of Trusts to Consider

If you’re thinking about putting a house in trust, you’ll need to decide which type makes the most sense for you. Consider these two types of trusts:

Revocable Trust: This type of trust allows you to amend the trust whenever you’d like. You may choose to appoint a new trustee, change your beneficiaries, or pull your home (or other assets) out of the trust at any time. You can also serve as trustee during your lifetime.

Irrevocable Trust: You relinquish ownership of assets placed in the trust—and making changes after that point can be difficult. Setting up an irrevocable trust can be complex, but trust assets are protected from creditors. That means creditors can’t come after your home if you pass away with debt. It can also reduce estate taxes and help you qualify for certain government benefits during your lifetime because the home is no longer in your name.

How to Put a House in a Trust

An experienced estate planning attorney can help you establish a trust for your home and answer specific legal questions. Putting a house in trust involves the following steps:

1. Decide between a revocable and irrevocable trust: Each one can affect your financial situation in different ways. Ask yourself how much control you want to have over the trust and if you want the ability to change who will inherit your home.
2. Choose a trustee: This may be a family member, trusted friend, attorney, or financial advisor. If you establish a revocable trust, you can serve as your own trustee.
3. Select your beneficiaries: Who do you want to inherit your home when the time comes? That may be one person, multiple people, or even a charitable organization.
4. Prepare trust documents: An estate planning attorney can walk you through the details and ensure these documents meet all necessary legal requirements.

Should I Put My House in a Trust?

Whether or not you should put your house in a trust depends on your financial situation and long-term goals. Below are some potential benefits and drawbacks to consider:

Pros:

• Avoid Probate: Probate can be lengthy and costly. With a trust, your beneficiaries will likely assume ownership of your home faster. Trusts can also protect your privacy since probate is a matter of public record, so all the individual assets in a trust won’t be listed.
• Financial Perks of Irrevocable Trusts: Since your home is owned by the trust, it won’t be included in your estate when you die. That could significantly reduce estate taxes. Your home will also be protected from creditors in the event that you leave behind debt.
• Control Over Assets: If you put your home in a revocable trust, you can modify your plans and make adjustments as needed during your lifetime.

Cons:

• Inflexibility of Irrevocable Trusts: It isn’t easy to modify this type of trust after it’s established.
• Downsides of Revocable Trusts: Trust assets are not protected from creditors, and this type of trust will not reduce estate taxes.
• Complexity and Cost: The process of establishing a trust will likely cost more than drafting a will. Trusts can also be complicated and will likely require an estate planning attorney.

The Bottom Line

Putting a house in trust is usually more involved than simply leaving it in your will, but doing so may be worth it. It can allow your heirs to sidestep the probate process and inherit the home faster. But for better or worse, it’s a decision that could affect your financial situation while you’re still alive. It’s wise to consult an estate planning attorney before making a decision.

At O1ne Mortgage, we understand that estate planning can be complex and overwhelming. If you have any questions about how putting your house in a trust could affect your mortgage or if you need any mortgage services, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate these important decisions and ensure that your financial future is secure.