In a perfect world, your ownership or share of ownership in your home would automatically to your spouse, children, or other chosen beneficiary as directed in your will. However, when you leave your real estate assets to your survivors via your will, those assets will need to go through probate. Additionally, there is always a risk that the transfer could hit a glitch or be delayed by probate. A better way to transfer property upon your death and avoid probate is by putting your home in a living trust.
What is a Living Trust?
Also known as a revocable trust, a living trust is an estate planning tool that allows you to pass down your assets to your survivors or other designated beneficiaries. Your home and other real estate properties can also be placed in trust to be dispersed upon your death.
- As the trust grantor, you set up and fund the trust with your assets while you are alive.
- You designate the beneficiaries who will receive all or a portion of your assets after your death.
- You select a trustee who will have a fiduciary duty to manage the assets in your living trust and follow through with dispersing them according to the directions you state in your trust document.
Benefits of Using a Living Trust for Your Home versus a Will
Because a living trust can be “revoked” at any time while you are still alive, like how you can make changes in your will. You can choose to modify, dissolve, or rescind your trust at any time, meaning you can add or delete beneficiaries, change trustees, or entirely dissolve the trust. This is especially beneficial if you need to remove your home from the trust if you need to refinance your mortgage, sell it, or do anything that would otherwise require special permission from a trustee.
A home that has been passed through a living trust will have fewer tax implications for your heirs. Federal and state inheritance taxes and capital gains taxes can be reduced or avoided completely with a trust.
By putting your home in a living trust, you spare your spouse, children, or other beneficiaries from the hassle of going through probate and the expense of hiring a probate lawyer. Probate can be a drawn-out and expensive process. While your executor and the probate lawyer will work toward making sure that your wishes, according to your will are carried out, the court has the final say. However, in the end, it may cost up to eight percent of your estate between paying executor, court, and probate lawyer expenses.
During the probate period, which could last between one to two years, your spouse or children will be in limbo. They will not have legal control over your home, which is a precarious position to be in, especially if they need to sell it, refinance it, or need to file an insurance claim if it is damaged.
Is a Living Trust a Better Option for You?
For many people, a living trust should be an essential part of their estate planning. There are very few exceptions to why, including your home in your living trust may apply. Therefore, it is crucial to always work with a knowledgeable and professional estate planning attorney, especially if you own multiple properties or properties located in various states. We can answer any questions you may have about living trusts and help you develop a well-rounded estate plan.