Is it A Good Idea to Put Your House in a Trust?

Trusts can be excellent options to help your family to avoid probate as well as distribute your assets in the manner that you choose after you pass away. However, it is not always clear if it’s a good idea to put your house in a trust. 

Putting a house in a trust may be a good idea for some people, but potentially a bad idea for others. The advantages of putting your house in a trust include avoiding probate, potential savings on estate taxes, privacy, and possible protection from creditors. Drawbacks include the cost, inconvenience, and additional work required. 

Before putting your house into a trust, you should know what type of trust is best for your situation and if it’s advisable to do so. It can be beneficial to consult with an estate planning lawyer. We can put you in touch immediately with one in your area today to learn more about your options. 

Learn more about putting your house in a trust below. 

What is a Trust?

A trust is essentially a legal vehicle that allows a third party to hold, manage, and direct trust fund assets for beneficiaries. The two basic types of trust include an irrevocable trust and a revocable trust. 

A revocable trust (sometimes called a living trust) allows the trust creator (grantor) to change, modify, or revoke the trust any time before death. This means that you can add or remove assets or change beneficiaries for any reason. Since property within a revocable trust is technically still owned by the grantor, it does not offer tax breaks or protection from creditors. 

On the other hand, an irrevocable trust cannot be changed, revoked, or modified except for rare circumstances. Property placed in an irrevocable trust is legally owned by the trust and managed by a trustee. 

Since the property in an irrevocable trust is not considered a part of your estate, it can be an excellent tool to avoid or decrease estate and potentially other types of taxes. 

What Does it Mean if Your Home is in a Trust?

It depends on the type of trust that you have. If your home is placed in a revocable trust, it means that you still own it, but it can be transferred to the trust upon your death. If you place your home in an irrevocable trust, the trust completely owns the home and your name is taken off of the deed when the trust is created. 

Advantages of Putting Your House in a Trust

As you might have guessed, there are many potential benefits of putting your home or any other significant assets in a trust. Some of the most commonly cited advantages include the avoidance of probate, privacy, protection from creditors, and potential tax savings. Learn more about each below. 

Avoid Probate

Probate is a legal procedure that takes place when someone dies. It helps to ensure that property is given to the right people, debts are paid, and taxes are settled. This process can sometimes take months and in extreme cases, years. 

In addition to the time, the probate process can incur many court fees as well as attorney fees. Property placed in a trust can help to ensure that your family receives your property quickly while saving money. This can alleviate stress as well as uncertainty. 

Privacy

Don’t want your personal affairs made public when you pass away? Trusts can be a great option for ensuring that your privacy is maintained. If your property is only in a will, when it goes through the probate process information about your assets and how they are distributed will become public record. 

Since trusts are handled outside of the court system, your beneficiaries can receive their inheritance without worrying about their information becoming public. 

Protection From Creditors

It’s usually not a good idea to place assets or property in a trust that a creditor may have a claim to. However, an irrevocable trust can offer certain protection against creditors that wish to go after your assets. This is because property placed in an irrevocable trust is no longer considered your property. So, if your estate is sued, that property will not be vulnerable. 

It is important to note that this benefit is only available with an irrevocable trust. Revocable living trusts offer no protections from creditors at all. 

Potential Tax Savings

Similar to protection from creditors, tax savings are mainly attributed to irrevocable trusts. Most estates do not qualify for estate taxes, but if you have a high-worth estate, you and your family could potentially save thousands of dollars. 

Additionally, property placed in a revocable living trust may be eligible for step-up tax benefits. This means that when you die, the home that you placed in a revocable trust its value will be capped at the level it was at upon your death. This can help your family to potentially avoid capital gains tax if the property were to increase in value after you pass away. 

Disadvantages of Putting Your House in a Trust

While there are many notable benefits of placing your home in a trust, there are also quite a few drawbacks such as the additional work needed to set up a trust, the costs, as well as potential inconveniences for your and your beneficiaries. Learn more about the disadvantages of putting your home in a trust below. 

Additional Work

Many people create a will on their own (though this is not typically recommended). They do so because a will is relatively simple and straightforward. Setting up a trust on the other hand involves many disciplines such as estate planning, taxes, and business law. Additionally, you have to set up accounts, transfer assets, and create/abide by the rules of the trust. 

Cost

You can create a will for a few hundred dollars. When it comes to setting up a trust though, you can expect that number to dramatically increase. Depending on your assets, the type of trust you want to set up, and how you want your assets distributed, you can expect to pay an estate planning lawyer $3k – $7k (sometimes more) to set up a trust for you. 

Some trust lawyers charge a flat fee plus an hourly rate, others charge based on a percentage of your assets. It can be helpful to speak with multiple lawyers and have a clear understanding of their fee structure before deciding to move forward. 

Inconvenience 

Placing your house in a trust does help your family to avoid probate and potentially offer tax breaks, but it can become inconvenient for you. This is particularly true if you wish to use the home as collateral when seeking a loan. 

In addition, your beneficiaries could run into issues with the assigned trustee if they seek to receive assets sooner than allowed by the trust rules or want to use the home as collateral when they seek a loan. 

When Should You Put Your House Into a Trust?

There is no “perfect time” to place your home in a trust. It will largely depend on your current needs and your wishes for your family. However, if you wish to protect your home from creditors in the event you become incapacitated, then it can be beneficial to place your home in an irrevocable trust as soon as possible. 

Speak with a proven estate planning and tax professional before doing so. They can help you to construct a plan and timeline that is in the best interest of you and your beneficiaries. 

Selling a House in a Living Trust

Regardless of if your home is placed in a revocable or irrevocable trust, you can sell it. However, the implications and procedures are vastly different depending on the type of trust you have. If your home is in a revocable living trust, you simply sell your home the same way you would if it wasn’t in a trust, since you still own it. 

If your home is in an irrevocable trust, the process is much more involved. If you wish to sell the home because you are downsizing or just want to move, you can, but you will need the permission of the trustee. 

An advantage of selling a home in an irrevocable trust is that you and your beneficiaries will not incur any capital gains tax. The trust is responsible for paying that. Your estate will also not be subjected to estate taxes. 

Do I Need a Lawyer to Put My House in a Trust?

Technically, no. You can place your home in a trust on your own. However, there are many potential pitfalls of doing so without the help of an estate planning lawyer. A few benefits of working with a seasoned estate planning lawyer before placing your home in a trust can include:

• Assurance that your documentation and paperwork are legally sound
• Advice on the type of trust you should use
• Selecting beneficiaries and planning the distribution of all assets in the trust
• Help with decreasing or totally avoiding taxes
• Understanding state and federal laws and how they apply to you
• Help to ensure that you and your family save as much money as possible
• Retirement planning
• Help setting up accounts, choosing a trustee, and developing guidelines

Placing a home or any asset in trust can be a complex process. If you are unsure if an estate planning lawyer can be helpful, take advantage of a free initial consultation to learn more about the benefits of working with an estate planning attorney. 

Save Money With an Unbundled Lawyer Today 

Contrary to popular belief, trusts are not just for rich people. Middle-class families can also benefit greatly from placing their homes in a trust. However, many do not create a trust or even learn about them because of the high costs. 

With unbundled legal services, you can hire a trust lawyer to take care of the complex parts of setting up a comprehensive estate plan (including a trust), while you save thousands of dollars in upfront fees by taking care of the rest on your own.

Fees for unbundled estate planning lawyers start as low as $500-$1500. If your estate planning needs are more complex, our network of unbundled lawyers also offers comprehensive estate planning services at affordable rates. 

Before you decide that creating a trust is too expensive for you or you pay a lawyer thousands of dollars in upfront fees, get instantly connected with an unbundled lawyer in your area, and learn if your estate planning needs are a good fit to be unbundled today.