If you’re considering developing an estate plan (and you should!), you’ve probably given some thought as to what you want to leave to your family, and how. Your assets are more than just line items on a spreadsheet; they offer both sentimental and financial value, and perhaps nothing offers more of both than your family home.
Estate planning for your home is one of the most important parts of the process, and yet many aren’t entirely sure of the best way to go about leaving their house to their family. Most are broadly familiar with Wills and their function, but a Will isn’t the only means of assigning our property after our death. A growing number of homeowners are also taking advantage of trusts to leave their homes and other property to family members upon their passing.
So what is a trust? It’s a financial arrangement whereby one person places assets in the care of a third party on behalf of a beneficiary. For the purposes of estate planning, a trust can be useful for parents of young children; parents might set up a trust for their child’s appointed legal guardian to ensure that they’re financially taken care of should anything happen to them. For this reason, trusts require someone that you, well, trust to manage those assets.
If you choose to create a trust for your assets, including your home, with the purpose of leaving it to your beneficiaries after you’ve passed on, there are different options available. There are two basic categories of trusts: living trusts, which take effect while you’re still alive, and testamentary trusts, meant to go into effect upon your death. Typically, a testamentary trust is something that is stipulated in your Will and created when the Will goes into effect, meaning that, like a Will, it can be revoked and changed as necessary.
Living trusts can be revocable or irrevocable, with the latter meaning that it’s unable to be changed or altered after creation, and revocable trusts become irrevocable after the creator of the trust dies. If it sounds complicated, it’s because trusts and estate planning are complex and are best handled with the help of an attorney.
Regardless of which option you choose, if you’re creating a trust, you’ll have to transfer the deed of your home into the trust’s name on the title so that the trustees can assume ownership. With a living trust, you’ll have to transfer the deed when you create the trust, whereas a testamentary trust doesn’t exist before you die but you Will need to title your assets appropriately; again these trusts require legal assistance.
Each type of trust, and trust themselves, have both benefits and drawbacks compared to the alternatives available for estate planning. A significant potential benefit of the living trust is that it can allow you to bypass the probate process, at least in the case of revocable living trusts.
Testamentary trusts, because they have to be created after the death of the grantor, must go through probate, a sometimes lengthy and expensive process. A trust may potentially defer some of the burdens of estate taxes, should your property be subject to them.
Trusts also offer the option to delay the distribution of your assets until a later date or stipulate how a beneficiary can qualify for their inheritance. Whether it’s a child that is not yet eighteen or a family member that might not be able to responsibly manage money at present until a later age, a trust lets you set the conditions whereby assets can be paid out to those named as beneficiaries.
The disadvantage of a trust is that it can be more complicated to create, and if it encompasses more than just your home, could be more costly to update and maintain. As you acquire or sell off assets the trust may require updating, and any new assets that you wish to be part of the trust must have titles reflecting the trust’s ownership, and not that of an individual.
Trusts also don’t automatically protect your beneficiaries against any liens placed against your property, even if that property is held in a trust; it depends on the time of trust and other factors. Therefore, if you pass away with judgments or taxes owed on your property, creditors may look to collect on those debts from your estate, as they would during the probate process. However, your trust beneficiaries do have some rights.
More important than the choice to create a trust in addition to a Will is the decision to tackle estate planning at the point you have any assets to account for and any family to consider. Having a Will is critical for any individual, and acutely so for parents and homeowners.
You undoubtedly have thoughts about who will inherit your home and the dispensation of all your property, but without a Will, you’re leaving it up to the probate court to make those determinations. Moreover, you’re putting an additional burden on your family to sort out your affairs, making what is a difficult process even harder. If you’re not willing to create an estate plan for your own peace of mind, at least do so for your family’s benefit.
Whatever estate planning you do in terms of Wills and trusts, your home is central to your thinking and making sure that your family gets your home with a minimal amount of difficulty should be a priority. Trusts offer an option for those who feel a will alone won’t work for their property, but as with any important estate planning decision, it’s best to speak with a lawyer to understand all the implications before taking action.
LegalShield estate planning lawyers can assist with legal advice for a Living Trust; membership plans start at $26.95 per month.
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