Don’t Put Your House In A Trust (A Lawyer’s Perspective)

Don't Put Your House In A Trust

What are some reasons an attorney would tell you don’t put your house in a trust? 

In this article, you’ll learn about: 

  • reasons you shouldn’t put your house in a trust
  • advantages of putting your house in a trust
  • how to put your house in a trust
  • who owns the property in a trust
  • whether it can be sold once it’s in the trust

Let’s dig in. 

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Reasons A Lawyer Would Suggest You Don't Put Your House In A Trust

Putting a house in a trust can offer numerous advantages, such as:

  • avoiding probate
  • ensuring privacy
  • sometimes offering potential tax benefits

However, there are also valid reasons why you should not put your home into a trust, like:

  • Costs and Complications: Setting up a trust requires legal expertise, and there will be legal fees involved. Maintaining the trust over time might also involve costs, especially if amendments or changes are needed.
  • Loss of Control: With certain types of trusts, like irrevocable trusts, you cede some control over the property, making it harder or even impossible to make changes without consent from beneficiaries or trustees.
  • Mortgage Issues: If you have a mortgage on your house, transferring it to a trust can sometimes trigger the “due on sale” clause in your mortgage contract, which means the full balance might become due. However, in some jurisdictions and under certain circumstances (like with revocable trusts), this isn’t an issue.
  • Potential Property Tax Reassessment: In some states or jurisdictions, transferring a house into a trust can trigger a reassessment of its property tax value, potentially increasing property taxes.
  • Trust Maintenance: Trusts aren’t just “set it and forget it” arrangements. There might be ongoing administrative duties, especially if you are dealing with a complex trust structure.
  • Limited Protection: Contrary to popular belief, not all trusts protect assets from creditors. The level of protection a trust offers depends on its type and the jurisdiction in which it’s set up.
  • Potential Impact on Medicaid Eligibility: If an individual is considering applying for Medicaid, moving a home into an irrevocable trust may have implications for Medicaid eligibility due to look-back periods and transfer penalties.
  • Title Insurance: Transferring your house into a trust can sometimes complicate matters regarding title insurance. In some cases, homeowners need to get an endorsement of their title insurance policy to ensure continuous coverage.
  • Rental Property and Landlord-Tenant Laws: If you’re considering moving rental property into a trust, you might need to consider how this impacts your responsibilities and rights as a landlord.
  • Overcomplication for Small Estates: For smaller estates that might already avoid probate due to their size or nature, setting up a trust might be overkill.
  • State-specific Rules and Regulations: Trust laws can vary by state or country, and what might be advantageous in one jurisdiction might not be in another.
  • Difficult to Dissolve: Especially with irrevocable trusts, it can be a complex process to dissolve or change the trust once it’s set up.

While there are a lot of disadvantages of putting your house in a trust, let’s look at the advantages of doing it. 

Read More: Does Your House Have To Be Paid Off To Put It In A Trust

What Are The Advantages Of Putting Your House In A Trust?

Putting your house in a trust can offer numerous advantages, depending on:

  • your goals 
  • the specific type of trust you use

Some potential advantages of putting your house in a trust include:

  • Avoiding Probate: One of the primary reasons many people put their house in a trust is to avoid probate. Probate can be time-consuming, costly, and public. By holding the property in a trust, it can pass directly to the beneficiaries without going through probate.
  • Privacy: Because trusts generally aren’t public records (unlike wills that go through probate), they offer a level of privacy regarding your assets and to whom they are distributed.
  • Estate Tax Benefits: For larger estates that might be subject to federal estate taxes, certain types of trusts can help reduce or eliminate these taxes.
  • Protection from Legal Judgments: Depending on the type of trust, it may offer protection against legal judgments or creditors. For instance, irrevocable trusts might protect assets from future creditors or legal judgments.
  • Control Over Asset Distribution: Trusts can allow for specific stipulations about how and when assets are distributed. For example, you might set up a trust to distribute assets to children only when they reach a certain age or achieve a specific milestone.
  • Protection from Mismanagement: For beneficiaries who might not be financially savvy, a trust can provide protection against the mismanagement of assets by placing the decision-making in the hands of a trusted trustee.
  • Incapacity Planning: If you become mentally incapacitated, a properly drafted living trust can help manage your assets without the need for a court-supervised guardianship or conservatorship.
  • Potential for Reduced Administrative Burdens: For individuals who own real estate in multiple states, placing these properties in a trust can avoid the need for multiple ancillary probate processes upon their passing.
  • Asset Consolidation: A trust can serve as a unifying vehicle, consolidating diverse assets in one place, which can simplify the management of these assets.
  • Protection Against Challenges: It can be more difficult to challenge the provisions of a trust than a will. Thus, if there’s concern about potential disputes among heirs or beneficiaries, a trust might provide more security in ensuring your wishes are carried out.
  • Medicaid Planning: In some circumstances, an irrevocable trust might be used as a tool for Medicaid planning to help meet eligibility requirements for long-term care assistance.
  • Continuity: Trusts can provide a seamless transition in asset management before and after death or in case of incapacity, especially when a corporate trustee is involved.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

How To Put House In Trust With Mortgage

Putting a house with a mortgage into a trust means transferring the ownership of that house from your personal name into the name of a trust. 

Doing this can help you avoid probate and potentially provide other estate planning benefits. 

Here’s a simple step-by-step guide on how to do it:

  • Check Your Mortgage Terms: Look for any “due-on-sale” clauses in your mortgage agreement. Such clauses could mean you’d need to pay the full mortgage if you change the house’s ownership. However, many mortgages allow ownership changes for estate planning purposes without triggering this clause.
  • Decide on a Trustee: If you’re creating a standard living trust, you can often be the trustee. Otherwise, choose someone you trust to manage the property according to the trust’s terms.
  • Draft the Trust Agreement: Have a trust lawyer write up the trust agreement. This document will specify important details like the trust’s name, the trustee’s responsibilities, and how the property will be managed or distributed.
  • Transfer the House: Sign a new deed, like a quitclaim deed, to change the house’s ownership from your personal name to the trustee of the trust. This deed then gets recorded with the local government office where property records are kept.
  • Notify Your Insurance Company: After transferring, tell your homeowner’s insurance about the change. This ensures the property remains insured under the trust’s name.
  • Keep Paying Your Mortgage: Remember, moving your house to a trust doesn’t change your mortgage responsibilities. Keep making regular payments.
  • Check on Property Tax Exemptions: If you had any property tax breaks (like for primary residences), make sure these still apply after the ownership change.
  • Review and Update the Trust: Over time, situations change. Periodically review and, if needed, update your trust to keep it in line with your current wishes.

Read More: Who Needs A Trust Instead Of A Will?

FAQs About Why You Should Not Put Your House In A Trust

Here are other questions clients ask us about why they shouldn’t put a house in a trust.

Who Owns The Property In A Trust?

When a property is placed in a trust, the ownership structure shifts. 

Here’s a straightforward breakdown:

  • Trustee: The trustee holds legal title to the property. This means the trustee has the authority and duty to manage and control the property in line with the trust’s rules and purposes. The trustee doesn’t own the property in the personal sense; they just have legal responsibility over it.
  • Beneficiaries: These are the individuals or entities that hold equitable title to the property. While they don’t manage the property, they are the ones who benefit from it. For instance, they might receive income generated from the property or use the property itself.
  • Settlor or Grantor: This is the person who originally owned the property and chose to put it in the trust. Once the property is in the trust, the settlor or grantor no longer holds title to it. Their control over the property depends on the trust’s terms.

In essence, while the trustee manages the property, the beneficiaries are the ones who truly benefit from it.

Read More: How Much Do Trusts Cost?

If A Property Is In Trust Can It Be Sold?

Yes, a property in a trust can be sold. 

In a trust, the trustee is the legal owner of the property. 

They have the power to manage it according to the trust’s terms. 

If the trust allows it, the trustee can sell the property. 

Here is the process to sell a property in a trust:

  • Reviewing the Trust Document: The trustee checks the terms of the trust to see if they have the authority to sell the property.
  • Determining the Best Interest: The trustee must act in the best interest of the beneficiaries. This means deciding if selling the property aligns with the goals and objectives of the trust.
  • Selling the Property: If the trustee decides to sell, they handle the sale process, much like any other property sale. They list the property, negotiate offers, and close the deal.
  • Distributing the Proceeds: After the sale, the trustee manages the proceeds. Depending on the trust terms, the money might be distributed to beneficiaries, reinvested, or used in another manner specified in the trust.

Remember, the trustee has specific authority based on the trust document. 

This document outlines how to manage the proceeds from a property sale. 

How the trustee handles the sale and the money depends on these terms.

Read More: What Assets Cannot Be Placed In A Trust?

Get Help Putting Your House In A Trust

If you want help from a trust attorney, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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