What is a trust?
Often time people think that trusts are reserved for the ultra-wealthy only. For many of us the word “trust” makes us think of trust fund kids who have seemingly won the genetic lottery. However, a trust can serve many different purposes and are, therefore, not reserved solely for ne’er-do-well grandsons. A trust is a legal instrument in which you can place title to your bank account, brokerage account, possessions, business, investment assets, and your house. The person creating the trust is called “the grantor”, who then transfers ownership of the assets to the trustee to hold in trust. The trustee manages the assets on behalf of the trust’s beneficiaries. Often time, the grantor, the trustee and the beneficiary are the same person. However, a well drafted trust will provide for who should get the trust’s assets when the current beneficiary dies.
Reasons to Put Your House in A Trust
One of the main reasons to place property in a trust is to bypass probate when you pass away. Probate is lengthy, expensive, and public process, whereby the Probate Court in the County where you reside when you pass away determines the authenticity of your Will and appoints a person or persons to be your Executor (or Personal Representative). Your Executor is in charge of marshalling your assets and passing those assets to your heirs as per the terms of your Will. If you die without a Will, your estate is “administered” rather than “probated” and the court appoints an “Administrator” to pass your assets via the laws of intestacy in your state, rather than and “Executor” to pass your asset as you have directed. During probate or administration, your Will, along with all aspects of your estate, becomes public record. Both probate and administration can be costly, stressful, and time consuming (usually even the simplest of estates can take a full year to probate from start to finish, and very few estates are simple).
In comparison, transferring assets through a trust is a private process. Trust assets are passed according to the trust provisions and outside the court system, which helps to avoid a long and costly probate. So, using a trust to pass your house can transfer ownership of that house to your heirs much faster and cheaper than a Will would have.
A good estate plan not only plans for death, but also plans for incapacity. When you create a revocable trust (sometimes called a “living trust”) you name a successor trustee who will be responsible for managing and distributing your assets upon your death. They are also responsible for managing your assets in the event you become incapacitated and can no longer manage your own affairs. Putting your house into a trust ensures that one of your most important assets will be managed by someone of your choosing in the event you become incapacitated.
Can I Sell My house After its in Trust?
Yes, selling your house that is in trust is just as simple as selling a house in your individual name. Regardless of whether you decide to make your trust revocable or irrevocable (as discussed below), your house can be sold at your direction.
Types of Trusts for Estate Planning for Real Estate
There are many different types of trusts for estate planning in general, but trusts for houses are one of two types, revocable and irrevocable. The following provides a brief overview of revocable and irrevocable trusts.
A revocable trust, also called a “living trust”, is one that you may revoke or revise at any time. If you are thinking of selling your house in the future, a revocable trust might be a good option. If you are the grantor of the trust, you can sell the property in the same way you would as if the property was held in your own name. In a revocable trust the trustee may sell the house and the profits are placed in trust until the grantor’s death. The trustee may transfer title to the grantor and the grantor can place the proceeds from the sale in a new trust or hold the proceeds in their individual name. Also, in a revocable trust, you are typically your own trustee, so you are collecting the proceeds of the sale at closing as trustee on your own behalf.
An irrevocable trust is structured so the grantor cannot revise it. Irrevocable trusts are often used for long term care planning. By placing your house into an irrevocable trust, after a certain waiting period, which in New York is five years, then the assets in the trust are not considered your asset for purposes of qualifying for Medicaid to pay for nursing home care, which essentially means the full value of your house will pass to your heirs without Medicaid being able to recoup its costs for your long term care. If property is held in an irrevocable trust, the grantor cannot make changes to the agreement.
For wealthy individuals, another type of irrevocable trust called a Qualified Personal Residence Trust (“QPRT”) can be used to lower the value of taxable gift. A QPRT is a trust used to transfer a personal residence to trust beneficiaries. The trust is for a specific term of years, where the grantor may continue to use the residence as his own. The initial transfer is deemed as a taxable gift of the remainder interest.
How to Put A House In A Trust
To put your house in trust all you have to do in execute a new deed transferring the property from your individual ownership into ownership by the trust. This is not a taxable event. You will not have to pay any transfer taxes. You will need to pay a deed recording charge to the county in which your house is located.
Conclusion
Placing your house into a trust has many potential benefits. If you are thinking of planning for long term care or simply want to avoid the process of probate, you should consider a trust to hold title to your property. The estate planning attorneys at Twomey, Latham, Shea, Kelley, Dubin & Quartararo are available at your convenience to answer your questions about placing your house into trust, review your current trust to determine if it should be amended, and to discuss and strategize the best method of placing your property into a trust.
