If you’re a homeowner, there’s a good chance you have thought about who should receive the property when you die, even if you haven’t fully decided. Leaving your home to an heir or heirs in a will is one way to pass it down, but placing your house in a trust can be a smart alternative.
While you may associate trusts with wealthy people who set up funds for their children to draw upon and live lavishly, these legal agreements make sense for anyone who wants to ensure that their most valued assets—including houses, vacation homes and business properties—are properly managed during and after their lifetimes.
There are many types of trusts, and they aren’t right for everybody, but placing property in one could have important benefits for you and your next generation.
What Exactly Is a Trust?
A trust is an arrangement in which an individual (known in the document as a grantor or settlor) names a beneficiary to receive specific assets. You can place your home in a trust, as well as money and other types of property such as land, a car, jewelry or even a business.
A trustee is appointed to oversee how the trust is administered. The trustee may be a third party, such as a lawyer or financial advisor, but is often the grantor himself or herself. In the latter case, a successor trustee is appointed to take over when the grantor dies, though that person can also be the beneficiary. A lot of the details can be modified to suit your needs.
Is a Trust Right for Your Home?
One of the most common reasons you might decide to place your home or other property in a trust is that you will spare your heir or heirs money, time and headaches.
Property held in trust can often avoid the legal procedure known as probate. Typically, an estate handed down in a will must be probated, which is a lengthy process in which a court ensures that a deceased person’s debts are paid and that assets are properly distributed to his or her beneficiaries. Probate can take months—even years—and can also incur significant costs. But a house that has been placed in trust skips all that hassle, and ownership of the property is transferred to heirs much faster.
Avoiding probate has another benefit that may be important to you. Once the probate process is completed, the contents of a will and estate become part of the public record. If you prefer that information remain undisclosed, putting your house in a trust is the way to go since the transfer is done privately.
Placing your home in a trust can have other benefits for you. What if, heaven forbid, you should become incapacitated? If your house is in a trust, your appointed trustee is authorized to manage the property during your lifetime. Buying a home with a trust or moving property into one can have tax advantages but only for some homeowners and only with certain types of trusts.
Types of Trusts
There are many types of trusts, but all fall into one of two categories: revocable or irrevocable.
● Revocable trusts. When you place your home in a revocable trust, you choose one or more beneficiaries to receive the property when you pass away (though, unlike with a will, you can also transfer ownership of a home placed in a trust before you die). Two of the most important features of a revocable trust are control and flexibility. If you put your home in a revocable trust, technically, you no longer own it, but you retain control over how the trust is administered.
A revocable trust names a successor trustee to manage it when you die (or should you become incapacitated). Your heir can assume that role, but you may also name someone else as successor trustee—for example, if you have concerns about how carefully your heir will manage any assets you leave him or her. An important feature of a revocable trust is that you can easily change beneficiaries, if you choose, or even dissolve it.
● Irrevocable trusts. Unlike with revocable trusts, the terms of an irrevocable trust cannot be altered except under limited circumstances, so switching beneficiaries and making other changes can be difficult. However, irrevocable trusts offer tax advantages for wealthy individuals. As of 2021, the estate of a deceased person who transfers assets to heirs valued at $11.7 million or more must pay federal estate tax. However, putting an estate that exceeds that high threshold into an irrevocable trust can eliminate or minimize the tax burden. Also, a home that’s placed in an irrevocable trust can be protected against creditors.
Transferring Ownership to a Trust
There are online services that can walk you through the process of transferring ownership of your home to a trust. However, you may be more comfortable working directly with an estate attorney, who can help you identify the type of trust that’s right for you, based on your priorities and circumstances.
How you transfer ownership of an asset to a trust depends on what you’re leaving to a beneficiary. In the case of a home, the process is relatively simple if you own the property outright: Get a copy of the original deed, change the name on it from yours to the name of the trust, then sign the deed in the presence of a notary public. This process is repeated when the trust hands over the home to the beneficiary. These transfers of ownership must be recorded with the recorder of deeds (sometimes called the registry of deeds) in your county.
This process is a bit more complicated if you hold a mortgage on your home. In that case, contact the bank or other lender who loaned you money to buy the house and seek their consent to place it in a trust. Keep in mind that if you carry a mortgage, that debt will be assumed by your heir.
Timothy Gower is an award-winning journalist whose work has appeared in more than two dozen major magazines and newspapers, including Prevention, Reader’s Digest, Esquire, Men’s Health, and The New York Times.
Illustration by Rob Dobi.
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