Real estate planning is essential in planning for the future of your family. One way of doing this is putting your home and other high-value assets into a trust.
A trust is a fiduciary relationship in which one party, the trustor or grantor, gives the second party, the trustee, the right to hold assets/property for a third party, called the beneficiary. When the trustor dies, the trustee oversees the distribution of assets according to the trustor’s wishes.
Trusts can be valuable in protecting your assets should you become ill and unable to properly manage your finances.
There are several types of trusts:
- Revocable: Can be changed or terminated by the trustor during their lifetime.
- Irrevocable: Cannot be changed once established because ownership of assets now belongs to the trust.
- Living: Establishes how the trustor’s assets can be used to their benefit during their lifetime. They can be their own trustee.
- Testamentary: Established how a trustor’s assets are used after their death and can only be used in an irrevocable trust.
- Funded: The trust is funded by assets titled in the name of the trust.
- Unfunded: The trust is not funded by assets titles in the name of the trust.
Now that you know what a trust is, what are the pros and cons?
Pro: Family will be able to inherit assets without going through probate
One of the pros of a trust is that when the trustor dies, their beneficiaries won’t get caught up in probate, saving time and money. Probate is the “formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries,” according to the American Bar Association.
Con: Additional paperwork
Establishing a trust can be a long, expensive process filled with paperwork and corresponding legal fees. This is normal, as creating a trust is complex to ensure that all of your bases are covered—especially if you are putting more than just your home into the trust.
Pro: Your estate remains private
The contents of your trust are known only to the beneficiaries. So, when you avoid probate by putting your property into a trust, that process remains private.
Con: Beneficiaries still may have to pay real estate taxes
If you have a revocable trust, beneficiaries will have to pay real estate taxes on assets. It’s also important to note that if you’re thinking of putting your home into a trust, do it with a good plan in mind—not just with the goal of potentially avoiding taxes.
As always, before establishing a trust for your real estate and other assets, consult with a trusted financial advisor and lawyer. They will guide you through the process and help you find the best option for you.
At Merchant of Homes, our agents have experience selling properties of all types including those in a trust. We are here to help guide you through the process of selling a home with peace of mind.