Many homeowners don’t realize, or understand, that they can transfer ownership of their home into a trust. Wait, Rob, aren’t trusts for rich people? No, actually they’re not, there are many reasons why someone with not much more than just a house would benefit from transferring their home into a trust. The biggest reason is to avoid the transfer of title through probate when the owner passes. Probate can be a long and expensive endeavor, and the intended beneficiary may not get exactly what was planned by the deceased, even when there is a will in place. A trust avoids this by automatically transferring the asset(s), including a home, to the beneficiary appointed in the articles of the trust, thus, bypassing the need to enter the real estate asset as part of the probate process.
How do I know if a trust is right for me? There are seven main reasons you would want to transfer your deed into a trust. First, and most obvious, as mentioned above, is to avoid probate after you die. The second is your home can transfer faster through a trust than through probate. Third, trusts allow you to add conditions for how or when heirs receive an inheritance. Fourth, a trust, unlike a will, can help you pass on assets even before you die. Fifth, wealthy estates may avoid or minimize estate taxes with an irrevocable trust. Sixth, placing a house in an irrevocable trust can help you qualify for Medicaid by decreasing your taxable estate. Last but not least, a house in an irrevocable trust cannot be claimed by creditors or through the Medicaid estate recovery program.
At this point, you’re probably like “why wouldn’t I do that?” Well, there are only really two main reasons you wouldn’t decide to put your home, or other assets, into a trust. One being, the cost of setting up and maintaining the trust. This one isn’t a big deal in most cases, as it is very affordable in the grand scheme of things, costing between $300-$1000 to set up, and possibly more depending on how many assets and directives there are. That’s a small investment to protect your intended beneficiaries from expensive legal fees of a challenged will. The second reason one might not want to put their home in a trust is that you still have to wait for other assets(not included in the trust) to go through probate.
Revocable or Irrevocable? A revocable trust(living trust) is one that you create while you’re alive and that you can modify or close at any time. An irrevocable trust is one that you cannot close, either because you structured it that way or because you have already died. Putting your home in a revocable trust allows you to change the terms or remove the house from the trust if you need to. An irrevocable trust can lower your taxable estate for income-restricted programs such as Medicaid. Assets in an irrevocable trust usually cannot be claimed by a creditor and are also safe from the Medicaid estate recovery program. Keep in mind, a revocable trust will become an irrevocable trust after death since you can no longer modify or close it.
Disclaimer: I am not an attorney and none of the information above should be taken as legal advice. To find out if a trust is right for you, your home, and your assets, you should contact an estate attorney. They can identify what options are best for you and your needs.
by Rob OConnor