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This estate planning measure is less costly and can still help you avoid probate. The contents of wills and estates go into the public record after the probate process is completed, so anyone could see what you owned, how much it was worth, and who received it after you died. As mentioned earlier, one of the biggest advantages of putting a house into a trust is that, unlike a will, a living trust allows you to avoid probate court. Over the past decade at Rochester Law Center, we’ve helped 1,000s of clients estate plan.
What Is a Trust? Definition, Account Types and Benefits
People also create trusts as part of their estate plan to facilitate the transfer of assets outside of probate and sometimes to avoid estate taxes. 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. Estate planning is about creating a custom plan to allow you to transfer your money, property, and assets to your family in the most efficient way possible.
reasons to put your house in a trust
Transferring real estate property into a trust is often an important part of estate planning. If neglected, this can force the estate to go through probate, which may increase costs and compromise the estate owner’s privacy. Transferring real estate involves issuing a new deed that names the trust as the owner. There are many different types of trusts, including living trusts, revocable and irrevocable trusts.
Revocable trusts vs. irrevocable trusts
In the next section we will talk about all of the additional benefits of putting a house into a trust. You are also allowed to refinance a mortgage on a house that has been placed in a trust. (And putting it in a trust doesn’t change the fact you still need to make mortgage payments until the house is paid off.) But your bank may ask you to remove the house from the trust in order to refinance it. We believe everyone should be able to make financial decisions with confidence. Another problem may crop up if the property is not accurately described.
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Some of the most common questions we get asked are about living trusts. In this article, we’re going to cover some of the pros and cons of putting a house into a trust. A property trust is a legal contract that allows your home (or any other property you own) to be given to a beneficiary.
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The following table summarizes the benefits and drawbacks of creating any trust. Read on to learn what happens to a home when the owner dies and what to do if you inherit a property. The standard probate process takes a minimum of 5 months to complete. However, over the past decade we’ve experienced that it generally takes 9 months to a year to resolve simple cases (and several years for contested cases). Instead, their home can be transferred to their heirs in a private setting shortly after their death. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns).
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If you make mistakes, these errors may not be discovered until it is too late to fix the problem. You may decide to transfer many different assets including real estate and financial accounts. Be aware that if you transfer a property with a mortgage that’s not a primary home, this could sometimes trigger a due-on-sale clause on your loan that forces you to pay the entire balance. If you’re considering an irrevocable trust, know that it will have to pay its own tax returns (the trust manager, trustee, would file the returns). You may also want to have someone other than yourself manage it, for legal reasons.
When you create a living trust, you are known as the settlor or grantor, depending on what state you live in. When you set up the living trust, you also assign yourself as the trustee. The trustee is the person who has the right to manage all of the money, property, and assets that are placed inside of the living trust. By naming yourself trustee while you are living, you maintain the ability to manage all of the assets in your trust just like you do now. For example, if you plan on putting your house into a trust, you can still sell it at any time in the future. It’s a common misconception that estate planning only plans for death, but comprehensive estate planning plans for incapacity as well.
Estate taxes generally apply only for estates worth millions of dollars. Trusts make it possible for the grantor (the trust’s creator) to place conditions on when and how beneficiaries will receive the trust assets. That means you could move your house into a trust and then transfer ownership to someone else even before you die (like by setting it up as a trust fund). For example, you may choose to pass on your house should you go into long-term care or become incapacitated. Situations where probate may drag out include if your estate is large; if you left unclear instructions for bequeathing your assets; or if you have assets in multiple states.
You may also find out that they think you should wait to put your home in a trust. For instance, if you’re still making payments on your mortgage and plan on refinancing, they may suggest waiting until you’ve refinanced. You might be worried about relatives feeling you favored one over the other. Or you simply don’t want everyone to know what happened to your property after your death. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
The probate costs are borne by the estate and thus the beneficiaries. Beneficiaries also can be stuck with paying estate expenses, such as property taxes on a home that goes through probate. While your home may end up with your desired beneficiary without your home being in a trust, all of this takes a lot of time and expense. You likely save your beneficiaries a lot of frustration, time and expense by putting your home in a trust. Some mortgages have due-on-sale clauses that require the loan to be paid off if the property is sold or otherwise transferred.
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The two most common estate planning documents are the last will and testament and the revocable living trust. Your successor trustee is the person who will take over management of your living trust after you die or become incapacitated. They will be responsible for settling your estate and distributing your assets to your beneficiaries after you die. Additionally, if you are putting your house into a trust, the successor trustee is the person who will manage your home, and any other assets you placed in the name of your trust if you become incapacitated.
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. 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.
The legal description of the property must be exactly correct for the transfer to take place. Elissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.
Essentially, a new deed has to be created that names the trust as the owner of the property. 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. 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.
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