Are you considering putting your house, real estate, and other assets into a living trust? Transferring property into a revocable living trust is a smart way to plan for your future and protect your estate. This comprehensive guide will walk you through everything you need to know about living trusts and transferring property.
A living trust allows you to avoid probate, keep control of your assets during your lifetime, and plan for their distribution after your death. Transferring property into the trust involves changing ownership from you as an individual to the trust. This process is straightforward with the help of an estate planning attorney.
What is a Trust?
A trust is a legal arrangement where property and assets are transferred and managed by one party (trustee) for the benefit of another (beneficiary).
A trust allows property to be owned and controlled by the trust rather than an individual. The trust document outlines exactly how the trust assets must be managed and distributed.
The most common types of trusts include:
- Revocable living trust – This type of trust can be changed or terminated at any time by the trust creator (also called the grantor or settlor). It allows the grantor to maintain control of the assets during their lifetime.
- Irrevocable trust – This trust cannot be altered or terminated once created. The grantor gives up all control over the property transferred into the irrevocable trust.
- Testamentary trust – Created through instructions in a person’s will. It takes effect upon the grantor’s death and is used to manage the property and distribute assets to beneficiaries as outlined in the will.
Benefits of Transferring Property into a Living Trust
Several major benefits come with transferring assets into your living trust:
- Avoid Probate: The main benefit is avoiding probate for property in the trust, which saves time and money.
- Privacy: Trusts are not public record like wills, so your estate remains private.
- Control: You maintain control over the property as trustee during your lifetime.
- Incapacity Planning: Your designated successors can take over the trust if you become incapacitated.
- Tax Benefits: Trusts may provide estate tax savings compared to property owned directly.
- Ease of Transfer: Beneficiaries can access inheritance faster compared to probate.
For these reasons, many people choose to transfer valuable assets like real estate, financial accounts, business interests, and personal property into their trust.
Steps for Transferring Real Estate to Your Trust
If you decide to transfer your real estate into a trust, follow these key steps:
- Create a living trust – Work with an estate planning attorney to draw up trust documents, name beneficiaries and a trustee, and outline management and distribution of assets.
- Change property deed – To transfer the real estate’s legal ownership, you must sign a new deed conveying the property to the trust. This is typically a quitclaim deed or warranty deed.
- Record new deed – The new deed transferring the property into the trust must be registered with the local property records office to complete the transfer of ownership.
- File trust certification – To avoid reassessment of the property, file a certification stating that the transfer to the trust was merely a change in form of ownership.
- Alert tax agencies – Notify relevant tax authorities so property tax bills and other notices are sent to the trustee going forward. Update your home insurance policy as well.
- Transfer other assets – Don’t forget to fund the trust by retitling financial accounts, vehicles, investments, and other assets into the name of the trust.
Should You Put Your House in a Trust?
Putting your house into a living trust is one of the most common ways to transfer an important asset. Here are some pros and cons to consider:
- Avoids probate for faster transfer to heirs
- Maintains privacy since trusts are not public record
- Allows incapacity planning if you become ill
- Provides protection from some legal liabilities
- An additional expense to create the trust
- Extra work to transfer ownership through a new deed
- Potential mismanagement by the assigned trustee
In most cases, the benefits outweigh the downsides. Transferring your house to a trust is recommended, especially if you own high-value real estate. But consider costs and administration responsibilities before deciding.
Tax and Insurance Impacts of Real Estate Trusts
Putting a house into a trust can alter how taxes and insurance work:
- Property taxes – Because most transfers to revocable trusts only change legal ownership, not beneficial ownership, they typically do not trigger property reassessment or increased taxes.
- Transfer taxes – Recording the new deed may incur nominal deed transfer or trust registration fees but usually does not cause transfer taxes to be assessed.
- Income taxes – Revocable trusts are non-taxable entities. The grantor still owes taxes on any property income while living. Irrevocable trusts file separate returns.
- Home insurance – The homeowner’s insurance must be rewritten in the trust’s name once the property has been transferred. All other terms should remain the same.
- Estate taxes – Assets left to beneficiaries avoid probate but may still incur estate taxes depending on the total estate size. Trusts can be useful estate tax planning tools.
Can You Transfer a Property with a Mortgage into a Trust?
Many people want to know if they can transfer a property that is currently subject to a mortgage into a revocable living trust. The answer is yes. You can transfer mortgaged property into a trust – with some caveats.
Here is an overview of transferring mortgaged real estate into a trust:
- Allowed – There is generally no legal issue transferring a mortgaged property into a trust. The process is the same as with property owned outright.
- Lender approval – Most lenders will not trigger the “due on sale” clause but notify them to ensure transfer is allowed.
- Loan assumption – With assumable loans, the trust must formally assume the note with lender consent.
- Title insurance – Get title insurance to cover the trust. Ensure existing title policy transfers as well.
- No acceleration – The mortgage cannot be accelerated simply due to the property transfer to a trust in most states.
- Credit issues – Any transfer could flag creditworthiness reviews by the lender. Trust language should demonstrate continuity.
- Record documents – When transferring into the trust, the deed and other paperwork must be recorded properly.
Yes, you can transfer mortgaged real property into a living trust but work closely with lenders, the title company, and your attorney to ensure a smooth transition.
How is Property Transferred Out of a Trust?
During the life of a revocable trust, the grantor retains full power to remove property from the trust at any time:
- Direct transfer – The grantor can direct the trustee in writing to distribute real estate or other assets back to the grantor individually.
- Revoke trust – The entire trust can be revoked, and all property returned to the original owner. The trust deed must be formally terminated.
- Power of appointment – The trust instrument can give the grantor a power of appointment to redirect trust property back to themselves.
- Purchase property – The grantor can personally buy assets back from the trustee through a valid purchase transaction.
- Trust amendment – Provisions facilitating removing property can be included in the original trust document or added later through an amendment.
- Court reformation – If trust language prevents the removal of property, the grantor can petition a court to reform the trust to allow the transfer.
Removing assets like real estate is far more complex or even impossible with an irrevocable trust, depending on the trust terms. Careful considerations should be made before transferring property into an irrevocable trust.
Finding a Trust Attorney to Help with Property Transfer
The process of transferring property into a trust can seem daunting. An experienced attorney from Apple Payne Law, PPLC, can guide you through each required step. Here’s how to find the right lawyer:
- Ask your estate planning attorney for a trust lawyer recommendation.
- Search online for trust attorneys located in your state.
- Look for an attorney specializing in living trusts with years of experience.
- Schedule a consultation and ask about their specific process for property transfers.
- Choose a trust lawyer you feel comfortable with and who answers all your questions.
- Agree on a flat fee or hourly rate before proceeding with transfers.
Having reliable legal counsel for transferring assets into your trust provides peace of mind that it is done correctly. Take time to find the ideal trust attorney.
Frequently Asked Questions:
Q: What is the purpose of transferring property into a trust?
A: The purpose of transferring property into a trust is to ensure that the property is properly managed and distributed according to your wishes after your passing. It also helps avoid probate and allows for a smoother transition of assets.
Q: What is a revocable trust?
A: A revocable trust, also known as a living trust, is a trust that can be amended or revoked by the property owner during their lifetime. It offers flexibility and allows for changes to be made to the trust as circumstances change.
Q: What are transfer taxes?
A: Transfer taxes are taxes imposed by the government on transferring property from one party to another. These taxes are typically based on the value of the property being transferred.
Q: Will I still be the owner of the property if I transfer it to a trust?
A: No, once you transfer property to a trust, the trust becomes the owner of the property. However, as the creator of the trust, you can still maintain control over the property and make decisions regarding its use and management.
- A living trust lets you transfer property to avoid probate and plan for the future.
- Real estate, financial accounts, vehicles, and valuables are commonly put into trusts.
- Work with an attorney to properly transfer assets and update ownership records.
- As a trustee, you keep full control during your lifetime.
- A living trust can be amended if your needs change.
Discuss your goals with an estate planning attorney to create the ideal living trust for protecting your house, property, and assets. With professional guidance, transferring your estate into a trust is a smooth and smart process.