Living trusts are gaining popularity as a way to manage your assets and avoid probate. But is putting your house into a living trust the right move? This extensive guide will explore the pros and cons of putting your house in a living trust, how it works, and what you need to know to decide if it’s right for you.
A living trust, also called a revocable living trust, is a legal document created during your lifetime where you name a trustee to manage assets you transfer into the trust. The trustee handles the property in the trust according to the trust instructions for beneficiaries you select.
Living trusts have become an attractive option for residents to include in their estate plan because they can help avoid the probate process, provide protection if you become incapacitated, and give you maximum control of your assets while living. But they aren’t for everyone.
What Are the Pros and Cons of Putting Your House in a Living Trust?
The main benefits of putting your house in a living trust include:
- Avoiding probate. The probate process after someone passes away can be lengthy and expensive. Assets in a living trust don’t go through probate, allowing your beneficiaries to access the trust assets more quickly.
- Dealing with incapacity. A living trust lets you name a successor trustee to manage the trust property if you become incapacitated. This helps avoid a court-ordered guardianship.
- Control and flexibility. As grantor of the trust, you retain control over the assets during your lifetime. You can buy and sell trust property, change beneficiaries, or revoke the trust.
- Privacy. Unlike wills, trusts aren’t public records. Trust assets and distributions remain private.
Living trusts are a popular tool for estate planning because they provide control over your assets while living and passing property outside of probate when you die. This saves time and expenses for heirs.
However, there are some potential disadvantages to consider as well:
- Upfront costs. Creating a living trust and transferring property involves attorney fees, recording fees, and appraisal costs. Total costs range from $1,500-$5,000.
- Ongoing administration. Administering the trust involves maintaining records, filing tax returns, and keeping assets titled in the trust’s name. This creates extra work compared to owning property personally.
- No protection from creditors or estate taxes. Assets in a living trust are not generally protected from creditors. Living trusts don’t provide any shelter from estate taxes like an irrevocable trust.
While living trusts have many benefits, the costs and administrative responsibilities take effort. A living trust only solves some estate planning concerns.
How Does a Living Trust Work for a House?
How does the process work if you decide to put your house in a living trust? Here are the key steps:
- Creating the trust. Work with an estate planning attorney to create a revocable living trust customized for your goals. The attorney will draft a trust agreement detailing how the trust assets pass to beneficiaries.
- Transferring the house into the trust. Once signed, you must legally transfer ownership of your home to the name of the trust through a new deed. This retitling process costs several hundred dollars.
- Naming beneficiaries. As the grantor, you designate beneficiaries who will receive trust assets (like your house) upon your death. You can name primary and contingent beneficiaries.
- Successor trustee duties. Choose a trusted successor trustee to administer the trust if you can’t serve due to death or incapacity. They will manage and distribute the house to beneficiaries according to the trust instructions.
Retitling your home and administering a living trust involves effort. However, the streamlined distribution process can be worthwhile for many homeowners.
What Do You Need to Know About Revocable Living Trusts?
If a living trust seems right for you, here are some key facts about setting one up:
- Setting one up. Involve an estate planning attorney to customize the trust and create effective trust administration procedures. Do-it-yourself kits are risky.
- Costs. Attorney’s fees start at around $1,500. Title transfer and recording fees add a few hundred dollars. You may also need appraisal costs.
- Use with wills. A living trust works alongside a will called a “pour-over” will to catch any stray assets not transferred into the trust.
- Trustee selection. Choose a successor trustee who is trustworthy, financially savvy, and willing to take on administrative duties. You can name co-trustees.
Understanding the costs, specialized creation process, complementary will, and ongoing trustee administration requirements is important for considering a living trust.
Should You Put Your House in a Living Trust? Key Factors to Consider
Given the pros and cons, when does putting your house in a living trust make sense? Here are some key considerations:
- If you own real estate in multiple states, a living trust can help consolidate the property and allow for smoother administration after death.
- If you have minor children or special needs beneficiaries, a living trust lets you coordinate property management and disbursements.
- If you want to maximize control of your assets and minimize probate delays for beneficiaries, a revocable living trust is useful.
But a living trust usually doesn’t make sense if:
- You don’t have real estate holdings in multiple states that would benefit from consolidated administration.
- You have limited assets without complex beneficiary situations. Your beneficiaries can likely access assets easily without a living trust.
As with any estate planning decision, your unique financial situation and goals should drive your living trust strategy. Discuss the pros and cons with an estate planning attorney to see if a living trust benefits you.
Frequently Asked Questions:
Q: What is the difference between a revocable and irrevocable trust?
A: A revocable trust can be replaced or terminated by the grantor at any time, while an irrevocable trust cannot be modified or revoked once created. Revocable trusts are commonly used for estate planning purposes.
Q: How do I transfer ownership of my house into a living trust?
A: To put your house into your living trust, you need to legally change the title by filing a new deed naming the trust as the owner. This requires working with an attorney to prepare and submit the new deed for recording.
Q: What happens if I put my house into a living trust but fail to transfer all the assets into the trust?
A: Any assets not properly transferred into the living trust will remain in your name. This can require probate, undermining the benefits of creating a living trust. It’s important to work with an attorney to fund your trust correctly.
Q: If I create a living trust, do I still need a last will and testament?
A: Yes, you should have what’s called a “pour-over will” to transfer any stray assets not captured in the living trust into the trust upon your death. This backup will ensure your wishes are followed.
Q: Can a living trust reduce my estate taxes?
A: No, a standard revocable living trust provides no estate tax savings like an irrevocable trust can. But it can reduce estate administration costs and time by avoiding probate.