When you start the estate planning process, one crucial decision is determining what will happen to your home after you pass away. Putting your house in a trust is an option that can protect your assets and reduce the tax burden on your loved ones.

However, once you place your home in a trust, you may lose some direct access to it, depending on the type of trust you choose. Researching all your options and selecting the trust that aligns with your goals is essential. Here’s what you need to know about placing property in a trust.

Reasons To Put Your House In A Trust

Many people associate trusts with death, but they can offer significant benefits while you’re still alive. A trust, particularly irrevocable, can protect your assets throughout your lifetime. If you place your home in an irrevocable trust, you shield it from creditors and legal actions. More importantly, this trust can help you qualify for government programs like SSI and Medicaid or gain admission to certain nursing homes with income restrictions.

It’s also important to consider how a trust can maximize benefits after your death. The primary advantage of any living trust is that it prevents your assets from going through probate. Without a trust, your estate could face higher taxes than if the assets were separated into a trust, potentially placing them in a lower tax bracket.

Reasons Not To Put Your House In A Trust

Before deciding to put your house in a trust, thoroughly review your assets. There are valid reasons to keep your home out of a trust. Many of the benefits related to placing a house in a trust are specific to irrevocable trusts, which are trusts that cannot be changed. Once your home is in an irrevocable trust, you cannot sell or refinance it without the written consent of all beneficiaries.

Additionally, placing your house in a trust involves several steps, including appointing a trustee and completing the necessary paperwork to transfer the property into the trust. Depending on your situation, these extra steps may be considered drawbacks.

Do I Need a Trust If I Have a Will?

As you consider placing your house in a trust, you might wonder if having a will is sufficient. In some cases, a will might meet your needs, but a trust offers several advantages that a will does not:

• Privacy: One critical benefit of a trust is the peace of mind it brings through confidentiality. While a will becomes a public document during probate, a trust remains private. Transferring your home to your heirs can occur without public disclosure, protecting your family's privacy.
• Avoiding Probate: A trust allows your assets, including your home, to bypass the probate process. Probate can be lengthy and costly, potentially delaying the transfer of your property to your heirs. A trust ensures that your home passes directly to your beneficiaries without the need for probate court involvement.
• Control Over Asset Distribution: A trust gives you more control over how and when your assets are distributed. You can specify conditions for the transfer of your home, such as waiting until your heirs reach a certain age or achieve certain milestones. This level of control isn't possible with a will alone.
• Protection for Incapacity: A trust can also protect your assets if incapacitated. If you can no longer manage your affairs, the trustee can step in to manage the assets in the trust, including your home, without needing a court-appointed guardian. A will, on the other hand, only takes effect after death and doesn't offer this type of protection.
• Flexibility: Trusts, particularly revocable trusts, offer high adaptability. You can modify or revoke the trust at any time during your lifetime, allowing you to adapt to changing circumstances. Wills, while they can be updated, don't provide the same level of flexibility when it comes to managing assets during your lifetime.
• Asset Protection: In some instances, particularly with irrevocable trusts, placing your home in a trust can protect it from creditors and legal judgments. This level of protection isn't available with a will.
• Seamless Transfer of Property: A trust ensures that the transfer of your home to your heirs is seamless, without the delays and costs associated with probate. This can be especially important if your heirs need immediate access to the property or other assets.

While a trust provides these advantages, it's important to note that once the home transfers to the new owner, they can no longer hide the property. The ownership change will be recorded, and the property becomes a matter of public record.

Revocable Trust vs Irrevocable Trust: Where Should It Go?

Placing your house in an irrevocable trust can provide significant benefits, but it has limitations. Once the home is in an irrevocable trust, you won't be able to sell it without the beneficiaries' consent, and you'll remain responsible for the mortgage and property taxes. However, if maintaining control over your home while avoiding probate is your primary concern, a revocable trust might be a better option. This type of trust allows you to manage and modify the trust during your lifetime, providing flexibility while bypassing probate.

Some individuals even purchase a home directly into a trust, ensuring it remains separate from other assets. It's important to note that revocable trusts do not protect your assets from creditors, which means you may forgo some protective benefits. Alternatively, placing your home in an LLC might offer similar protections without the complexities associated with a trust.

Final Thoughts

Putting your home in a trust can be a great option if you have concerns about your assets being safely passed to your loved ones. But it comes with some downsides, as well. We recommend working with a certified financial planner to determine the best way to keep your assets safe while still keeping you in control.

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