By: AVID Esq. Group LLC October 18, 2023

How to Put a House in a Trust: A Step-by-Step Guide

Understanding Trust

When considering estate planning, it’s important to understand the concept of a trust and its various components.

In simple terms, a trust is a legal arrangement in which one party, called the grantor, transfers property to another party, the trustee, to manage on behalf of the trust’s beneficiaries.

There are different types of trusts, but the most common ones are revocable and irrevocable trusts.

A revocable trust allows the grantor to alter or dissolve the trust at any point, offering flexibility in managing assets.

On the other hand, an irrevocable trust is permanently unchangeable, providing a more rigid structure but often greater asset protection.

In addition to choosing the type of trust, it’s crucial to select an appropriate trustee. This person will manage the trust according to the terms set by the grantor.

The trustee can be a family member, friend, or even a professional trust company.

Putting a house in a trust can offer numerous benefits, such as asset protection, simplified asset management, and potential tax advantages.

For instance, transferring a home to a real estate trust can shield it from potential creditors and help avoid probate, a time-consuming and costly legal process.

It’s important to remember that setting up a trust requires professional guidance.

It involves specific legal steps, such as drafting a trust agreement and signing a deed that names the trustee as the new owner of the property.

We recommend working with experienced estate planning attorneys and financial advisors to ensure a smooth and efficient process.

Types of House Trusts

When it comes to putting a house in a trust, there are two main types of trusts to consider: Revocable Living Trust and Irrevocable Living Trust.

Each has its advantages and disadvantages, depending on an individual’s situation and goals. In this section, we will discuss these two types of trusts and their key features.

Revocable Living Trust

A Revocable Living Trust is a flexible estate planning tool that allows you to maintain control over your assets, including your house, during your lifetime.

As the name suggests, this type of trust can be altered, amended, or even revoked at any time, giving you full control over the assets placed into the trust.

Some key benefits of a revocable living trust include:

Avoiding probate: Assets held in the trust will not have to go through the probate process, which can be time-consuming and expensive.
Privacy: Trust documents are not part of the public record, unlike a will, which becomes public upon your death.
Flexibility: You can adjust the terms of the trust as your circumstances change, such as adding or removing beneficiaries.

However, it’s important to note that a revocable living trust may not provide the same level of asset protection or tax benefits as an irrevocable trust.

Irrevocable Living Trust

An Irrevocable Living Trust is a more permanent arrangement, where the trust’s terms cannot be changed, except under special circumstances and with the consent of the named beneficiaries.

Once created, you essentially give up control over the assets placed in the trust.

This type of trust offers the following advantages:

Asset protection: Creditors and legal judgments typically cannot reach assets held in an irrevocable trust, safeguarding them for the beneficiaries.
Tax benefits: Irrevocable trusts can reduce or eliminate estate taxes on the assets held within the trust.
Medicaid planning: Assets in an irrevocable trust may not be counted when determining eligibility for government benefits, such as Medicaid.

However, the trade-off is the loss of control over the assets and the inability to easily modify the trust once it has been established.

Benefits of Putting a House in a Trust

There are several advantages to placing a house in a trust. We will explore some of the key benefits, which include bypassing probate, tax advantages, asset protection, and privacy preservation.

Bypass Probate

One of the main reasons people choose to put their house in a trust is to bypass probate.

Probate is the legal process that occurs after someone’s death, during which their assets are assessed and distributed.

By putting a house in a trust, the property can transfer directly to the beneficiaries without going through the time-consuming and expensive process of probate.

Tax Advantages

There are potential tax advantages to consider when placing a house in a trust.

A trust can help reduce estate tax liability and, in some cases, provide federal and state tax benefits.

It is crucial to consult with a tax professional to understand and maximize these benefits based on your unique financial situation.

Asset Protection

Putting a house in a trust can provide asset protection for your beneficiaries.

This means that the property may be protected from creditors, lawsuits, and loss from divorce settlements for the trust beneficiaries.

By placing the house in a trust rather than leaving it to the beneficiaries directly, you can ensure that the property remains a part of your family’s assets.

Privacy Preservation

Another benefit of placing your house in a trust is privacy preservation.

Unlike probate, which is a public process, a trust provides a higher level of privacy for your assets and family.

By using a trust, you can keep your personal and financial information confidential and avoid subjecting your family to public scrutiny during the distribution of your assets.

Process of Putting a House in a Trust

Selecting the Right Trust

When deciding to put a house in a trust, it is crucial to select the right type of trust for your situation.

Trusts can be revocable or irrevocable, each with unique features and benefits.

A revocable trust allows you to maintain control over your assets and make changes as necessary throughout your lifetime.

On the other hand, an irrevocable trust offers more asset protection but involves surrendering control of the assets once they are placed in the trust.

Hiring a Trust Attorney

To ensure the accuracy and legality of the trust creation process, it is essential to hire a trust attorney.

Trust attorneys have extensive knowledge and expertise in estate planning matters. They can guide you through the process, help you understand the legal implications of creating a trust, and ensure your trust complies with the law.

You can also consult with a financial advisor to better understand the tax implications and optimal structure of the trust.

Transferring the Deed

In order to put your house into a trust, you must transfer the property deed to the trust.

This involves obtaining the original property deed and signing a new deed, naming the trustee as the new owner of the property.

It is essential to notarize the new deed and record it with your local county recording office to formalize the transfer of ownership.

Funding the Trust

After creating the trust and transferring the property deed, the final step in the process is funding the trust.

This involves assigning any mortgages, loans, or additional assets related to the property to the trust.

It is important to work with your trust attorney and financial advisor during this stage to ensure that all necessary documentation is prepared and submitted correctly.

They can also help you understand any tax implications that may arise from income or expenses related to the property once it is held by the trust.

Managing the Trust

Trustee’s Responsibilities

As trustees, we have several important responsibilities to uphold when managing a trust.

First and foremost, we must always act in the best interest of the trust beneficiaries.

This involves making prudent investment decisions, managing trust assets, and distributing funds according to the trust’s terms.

In addition, we are responsible for maintaining accurate records of all trust activities and transactions.

This includes preparing and filing any required tax returns for the trust.

We must also communicate regularly with the beneficiaries, keeping them informed about the trust’s progress and addressing any concerns they may have.

Successor Trustee

In the event that we are unable or unwilling to continue serving as trustees, we must have a plan in place to ensure a smooth transition.

A successor trustee should be designated in the trust document, and they will take over the management and administration of the trust upon our resignation or incapacity.

It is crucial that the successor trustee is fully aware of their responsibilities and is prepared to step into the role when needed.

Proper communication and record-keeping will ensure that they are well-informed about the trust’s assets, beneficiaries, and any specific requirements.

Potential Difficulties and Solutions

Refinancing Problems

When putting a house into a trust, one potential difficulty might be refinancing the property.

As the property is now in the name of the trust, the refinance process can become somewhat more complex.

Lenders may hesitate to refinance a property held in a trust due to varying legal implications and additional paperwork.

To overcome this issue, we suggest working closely with an attorney or estate planner who is knowledgeable in trust administration.

They can guide you through the process and communicate with the lender on your behalf.

In some cases, it may be necessary to temporarily transfer your property out of the trust for the refinancing process, and then transfer it back once the refinancing is complete.

Home Insurance

Another concern when putting a house into a trust is the potential impact on your home insurance policy.

Insurance providers may not be familiar with trust ownership and could require updates to your policy.

This may involve modifying the named insured to include the trust or obtaining a new policy altogether.

To address the home insurance issue, we recommend contacting your insurance provider and informing them of the change in ownership.

Provide them with a copy of the trust agreement and any other necessary documentation.

In most cases, the insurance provider will simply update the policy to reflect the trust as an additional insured, ensuring that your home remains adequately protected.

The Final Verdict

Putting your house in a trust is more than just a legal maneuver; it’s a proactive step towards safeguarding your home and ensuring your peace of mind.

By following the steps outlined in this guide, you’re well on your way to making an informed decision that aligns with your long-term goals and provides clarity for your loved ones.

Remember, while the process may seem daunting at first, the peace of securing your legacy is invaluable.

If you’re ready to take this significant step but would appreciate a guiding hand, our team at AVID Esq Group is here to help.

With expertise in estate planning and a friendly, approachable style, we’re equipped to support you through every phase of putting your house in a trust.

Don’t hesitate to reach out and schedule a consultation.

Together, we can ensure that your home and your future are protected.

How to Put a House in a Trust FAQs

What types of trusts can be used for a house?

There are two main types of trusts that can be used for a house: revocable and irrevocable trusts.

A revocable trust, also known as a living trust, allows for flexibility and control by the grantor during their lifetime.

An irrevocable trust, on the other hand, offers asset protection and tax benefits but requires the grantor to relinquish control of the assets within the trust.

What are the benefits of placing a house into a trust?

Placing a house into a trust has several benefits.

The primary benefit is to bypass the probate process when the grantor passes away, which can save time and expenses for the beneficiaries (source).

Additionally, it provides asset protection, potential tax benefits, and privacy since the trust documents are not a matter of public record like the probate process.

What are the potential drawbacks of putting a house in a trust?

While there are benefits to placing a house in a trust, there may also be potential drawbacks.

For example, transferring the ownership of the house into the trust may entail additional costs, such as recording fees, legal fees, and potential tax implications.

It is also important to keep in mind that some trusts, especially irrevocable ones, may limit the grantor’s control over the property.

How does transferring property into a trust work?

To transfer property into a trust, the grantor must create a new deed in the name of the trustee. This new deed refers to the trustee as the owner of the property in their capacity as the trustee of the trust.

This new deed is then recorded with the county recorder’s office to formally transfer the property into the trust.

It is important to understand the specific requirements of your state and consult with professionals to ensure the transfer is completed correctly.

Do I need an attorney to establish a trust for a house?

While it is possible to create a trust without professional assistance, we highly recommend consulting with an estate planning attorney to ensure that the trust is properly established and complies with all applicable laws.

Experienced attorneys can help you navigate the complex process and avoid potential pitfalls or mistakes that could have negative consequences down the line.

Are there any state-specific rules for creating a trust for a house?

Each state has its own laws and regulations surrounding trusts and the process of transferring property into them.

It is crucial to familiarize yourself with your state’s specific requirements, as failing to comply with these rules could invalidate your trust.

Working with a local estate planning attorney is the best way to ensure your trust complies with all relevant state regulations.