How to put a house in a trust? And, is it a good idea?

Are you thinking of putting your home in a trust? It can help protect your family and safeguard their finances after you’re gone. If you’re looking to understand how to put a house in a trust while maintaining control over it, read on. 

You could use a will and testament to pass on money and belongings to your heir or use a trust to pass on your house or other valuable assets to them.

Placing your assets in a trust can be a wise move if you want to avoid going to the probate court, protect your beneficiaries from creditors and lawsuits, and want to transfer ownership seamlessly after your passing.

However, you need to understand how to put a house in a trust, whom to name as a trustee, and the types of trusts. It’s best to consult with an attorney.

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What is a property trust?

A trust is a legal system that allows a person, the grantor, to create a trust in order to transfer a piece of real estate property to the person, the beneficiary, who would inherit their property. A trustee, in accordance with the grantor’s instructions, manages the assets in the trust on behalf of the beneficiary.

Let’s take an example to explain how trusts work. Suppose you have $100 that you want to give to your daughter next month. You’ll be out of the city the next month but do not want to give her the money ahead of time. So you give the money to your friend and ask him to hold onto it until next month and then give it to your daughter. 

You are the grantor, your friend is the trustee and your daughter is the beneficiary. While this example will help you understand the concept of trusts, the actual process of setting up a living trust is more complicated and expensive. Moreover, it’s a lengthy process.  

Why should you put your home in a trust?

The main agenda behind putting your house in a trust is avoiding probate when you pass away. When you die, your assets – whether you have a will or not – go through the probate process or a judicial process. The assets are evaluated and utilized to pay any outstanding debts or taxes. The rest of the property is then distributed according to the will. In case there’s no will, the assets are distributed in accordance with the state’s laws regarding intestate succession.

This probate process can be completed in a few months in case the property in question is a small one. For large estates or complex situations, the process might take a year or two to settle. It’s longer if the will is being contested.

Apart from avoiding probate, putting your home in a trust can also protect your property in case you become incapacitated.

Do keep in mind that after you’ve created a trust, it can be difficult to change your mortgage terms by loan refinancing.

How does a property trust work?

If the trust is a living, revocable one, you will normally name yourself as the trustee when you transfer an asset like a house into it. A successor trustee, who will take over after your death, will also be named.

Thereafter, your designated trustee will be in charge of carrying out the terms of the trust and distributing the trust’s assets to your beneficiaries. Knowing that your home will be transferred to the person you specify after your death might give you some peace of mind. The procedure also saves your beneficiary from going through a long legal procedure.

Should you set up a property trust if you have a will?

The answer depends on your priorities, goals, and the needs of your family. Creating a property trust is a faster, more efficient way to transfer your assets to your heirs than a will.

In fact, if you want your estate succession to be thoroughly planned, you can utilize both trusts and wills. A vital asset such as a house is transferred more smoothly and quickly than during the standard probate process.

What are the different types of trusts?

When it comes to estate planning, the most relevant types of trusts are revocable trusts and irrevocable trusts.

Revocable trust

As the name suggests, a revocable trust can be revoked. Also known as a living trust, it can be created during the grantor’s lifetime. And, can be changed or terminated completely by the grantor.

The grantor will typically be their own trustee till their death or incapacitation. The living grantor has full control over the assets in the trust. Upon death, the revocable trust turns to an irrevocable trust whereby a successor trustee takes control and manages the trust. This type of trust is subject to estate taxes and has no protection against creditors or ex-spouses.

Irrevocable trust

Such a trust once executed can’t be changed or terminated. The grantor forfeits the ownership of the assets and the trustee takes control of them.

Since the property is no longer part of your estate, it won’t be subject to an estate tax or be vulnerable to creditors. It’s important that you understand the implications of no longer owning the property you put into this trust. It’s best to consult an attorney to know your legal rights and options.

How to put a house in a trust?

Creating a revocable, living trust means choosing your successor trustee and naming your beneficiaries through a legal document.

Make sure your successor trustee is someone you can count on explicitly. For a large estate, you might choose an attorney or trust company to be your successor.

The first step is to prepare a trust agreement, a document that outlines the details of the trust. You can either ask your lawyer for the same or find a standard trust agreement online. And then, sign the document in front of a notary public. The next step is to move your home into the trust by filling out a new state-specific deed form. This document too will need your signature in front of a notary public. You’ll have to record it with your county recorder or clerk’s office.

Should you put your house in a trust? Pros and cons 

Before you decide whether to put your home in a trust or not, do weigh the advantages vs the disadvantages of creating a property trust. 

Pros 

• A trust helps avoid probate – even a multistate probate process in case you own a primary residence in one state and a vacation home in another. If you put one of the properties in a trust, you can save the executor of your estate from handling two probate processes. 
• A trust also keeps the details of your estate private as opposed to a probate process that’s a matter of public record.
• A trust can provide greater control over how a property is managed and distributed after the grantor’s death. For example, the grantor can specify who will manage the property and how the income from the property will be distributed to beneficiaries.

Cons 

• Setting up a living trust for a house can be a complex and expensive process due to several costs such as court fees, legal expenses, and administrative costs.
• Apart from your property, your other assets may still need to go through the probate process. 
• Things can get awkward if the trustee of the trust is not a reliable entity.
• Putting your home into a trust can make refinancing (a rate-and-term or cash-out refinance) more difficult.

Last thoughts

Estate succession is an important part of planning for the future. You can set up a property trust if your house is your most valuable asset and you’re worried about your family’s financial situation after you’re gone. A well-executed trust can make life easier for your heirs while providing you with peace of mind. Keep in mind that it’s best to consult with an estate planning attorney or financial advisor before making any decisions about transferring your property to a trust.

Written by Ramona Sinha. March 8, 2023

Ramona is a content writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. An avid traveler, she’s a digital nomad at heart and an animal lover from the depths of her soul.