Putting a house in a trust offers several advantages. As one of the most valuable assets in your estate, it is essential to know about any potential tax and creditor protections you are eligible to receive if you put your house in a trust. If you own a home in New York, it is important to consider your financial goals and estate planning objectives before making this decision.
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What are the advantages of putting your house in a trust?
Putting your house in a trust can provide several important benefits, including the following:
Trusts don’t have to go through probate
Probate is a court process in which a probate judge determines whether a person’s Last Will and testament is valid and, if so, oversees the distribution of the deceased person’s assets. Probate is a public process that can be drawn out and expensive, especially if you have a larger or more complex estate. Your beneficiaries will need to wait until the probate process is finished before they can take possession of the assets you leave them.
When you put your house in a trust, it can pass directly to your beneficiaries without involving the probate court. Your trustee will distribute your assets to your beneficiaries according to your trust instructions. Any assets you own that are not funded into the trust will still go through the probate process.
Trusts can protect your privacy
Wills and the probate process are public. If you prefer that the instructions in your will remain confidential and not public records, a trust can help keep your affairs private.
Trusts can help you avoid family disputes. Your trust documents can be amended and as detailed as necessary to make your wishes clear.
Trusts can protect your assets from creditors
Revocable living trusts are created during your lifetime. Typically, you will serve as the trustee for your revocable living trust and name a successor trustee to assume responsibility for managing your trust if you become incapacitated or die. You can make changes to your revocable living trust as long as you have the capacity to do so. When you die, your successor trustee will transfer the trust’s assets to your beneficiaries according to your trust instructions. Because you retain control over your revocable living trust, when your assets are distributed, your beneficiaries will pay estate taxes.
Irrevocable trusts are also created during your lifetime. Unlike a revocable living trust, you give up control over your assets when you transfer them into your irrevocable trust. You must appoint a third party to act as the trustee. Irrevocable trusts cannot be changed or revoked once you create them.
With an irrevocable trust, you can only change the terms of the trust if you meet certain criteria. Since you no longer control your assets in the trust, they are better protected against creditor claims. They are no longer considered to be part of your estate, and this can lead to potential estate tax benefits.
What factors should you consider before putting a house in a trust?
Creating a trust is a more extensive process than writing a will. Most people seek the help of an estate planning attorney to create an estate plan that includes a trust. Factors to consider when creating a trust include:
Type of trust
In addition to choosing between a revocable and irrevocable trust, there are several types of trusts people use to protect their assets and meet their financial goals. One of these is a qualified personal residence trust.
Revocable and irrevocable trusts each have their own benefits. Your estate planning attorney can help you select the best estate planning tool to meet your needs, depending on how much control you want to retain over your assets and the level of asset protection you seek.
Tax implications and cost
Creating a trust will be more expensive than writing a will. It is also more costly to maintain. Your estate planning attorney can help you understand the potential tax implications of establishing a trust and do a risk-benefit analysis based on your estate planning needs.
Choosing a trustee
The trustee for your trust has a fiduciary responsibility to manage the trust properly and in the best interests of the beneficiaries. They can be held accountable if they mismanage the trust.
Naming multiple children to serve as trustees can lead to conflicts, especially if the trust documents are open to interpretation.
How do you put a house in a trust?
After you determine the type of trust that best meets your needs, the next step is to write your trust documents and choose your trustee and beneficiaries. Consider adding a backup or successor trustee in case the trustee that you name is unable or unwilling to fulfill the obligations of a trustee.
After creating your trust, you need to transfer ownership of your home to your trust. You can do this by creating a new deed for your house in the trust’s name. Submit a copy of the updated deed to your county’s property records department.
Can you sell a house that is in a trust?
If you have a revocable living trust, you retain control over the trust. Therefore, you can sell your house in a trust at your discretion. Your beneficiaries will only receive the assets left in your trust when you die.
If you have an irrevocable living trust, the trust documents will describe how you can sell your trust-owned house and distribute the profits. These terms cannot be easily modified.
Ultimately, only you can answer the question, ”Should I put my house in a trust?” Our estate planning attorneys can help you make informed decisions about how to pass your real estate to your beneficiaries while meeting your financial and estate planning goals.
There is no one-size-fits-all guide to estate planning. If you are interested in discussing your estate plan options, schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.
