How to Put a House in A Trust

Scrolling into the wee hours of the night, you may have come across social media influencers encouraging you to place your house into a trust to protect it and your heirs. It sounds complicated and could keep you awake ... Is your house at risk without one?

Here’s the reality: Putting your house into a revocable trust (along with all your other assets) could have some benefits for your heirs, and there’s a good chance it’s a smart move for you. It’s not as complicated or scary as it might seem. On the flip side, it’s also not a secret hack that can save you crazy amounts of tax money, no matter what influencers might say.

UNDERSTANDING TRUSTS

WHAT IS A TRUST?

In estate planning, a trust is created to hold assets that will be managed by a trustee for the benefit of beneficiaries.

REVOCABLE TRUST VS. IRREVOCABLE TRUST

Some trusts are “irrevocable,” which means you’re permanently removing assets from your ownership and control, usually for tax purposes or to protect them. We do not recommend putting your house in an irrevocable trust, and you should absolutely talk to an estate planning attorney if you’re even considering it.

A more widely used type of trust for this purpose is a revocable trust. With a revocable trust, the grantor (which would be you) is often also the trustee (who manages the assets in the trust) and the beneficiary (who benefits from the assets in the trust). The grantor can also change the terms of the trust or revoke (end) it at any time. So long as you are not incapacitated, you are likely the grantor, trustee and beneficiary.

In effect, during your lifetime, you’d be changing the ownership of the house in a way that has no real impact – not on your taxes or for asset protection or anything related. So, what’s the point of that?

BENEFITS OF PUTTING A HOUSE IN A TRUST

A revocable trust is often considered a substitute for a will because it performs many of the same functions: Codifying your wishes for how and to whom you want your assets handed down and naming the person who will oversee the process (your executor or, in a trust, your successor trustee).

When you die, the court starts the process of probate, which involves:

• Examining the validity of any will
• Officially appointing the estate executor, giving them the legal powers they need to act

And that brings us to the potential benefits of placing a home in a trust. Depending on where you live, probate can take a decent amount of time and money, delaying and reducing the distribution of your assets to your loved ones. With a house, it could delay the process of selling it (if that’s what your heirs plan to do) or make things complicated for an heir who is living or plans to live there.

Because the probate process is public, anyone can access the terms of your will. With a revocable trust, your trustee has access to the assets in the name of the trust without first having to probate your will. And the terms of the trust are never made public.

So, you can see the benefits of putting a house in a trust if you:

• Want to make things easier for your executor
• Expect your heirs to want to access or sell your house quickly
• Have complicated family dynamics or value privacy for other reasons

There are also a few other scenarios in which a revocable trust is usually recommended. When it comes to your house, the most important thing to note is that revocable trusts are especially valuable if you own property in multiple states. Without one, your executor will need to probate your will in every state in which you own real property.

In these cases, a revocable trust can be a real gift for your loved ones and give you additional peace of mind now.

COSTS AND CONSIDERATIONS

You may naturally be wondering about the costs of putting a house in a trust. A house trust setup comes with attorney fees (we do not recommend trying to do it yourself) and minor costs associated with changing the title on your house.

It’s important to note that a revocable trust really only provides a benefit if all your non-retirement assets are in it – otherwise, your trustee does not get to avoid a probate proceeding. These other assets typically include checking, savings and taxable investment accounts.

STEPS TO PUT A HOUSE IN A TRUST

STEP 1: ASSESS YOUR SITUATION

Any trust should be part of your overall estate plan, and we strongly believe you should work with an estate planning attorney to guide you, draft the necessary documents and ensure your estate plan is complete, strategic and valid.

So, the first step is to talk to your estate planning attorney about whether a revocable trust makes sense for you.

STEP 2: COORDINATE WITH YOUR FINANCIAL ADVISOR

Your financial advisor should always be aware of any change you make with your money. While placing assets in a revocable trust may not have any immediate impact on your financial situation, they need to know about it, and they can coordinate with your estate planning attorney to make sure your estate plan and financial plan are working together.

STEP 3: DRAFT THE TRUST DOCUMENT

To create your trust, your attorney will need to know the details of how you’d like your assets to be handled when you pass. They’ll also need to know what you’d like to happen if you become incapacitated in the future. This means you’ll need to select your successor trustees and beneficiaries.

The trust document will likely be long, extremely detailed and full of legal jargon. But it’s critical you review it and make sure you understand every word. If you don’t, ask.

STEP 4: TRANSFER THE HOUSE TO THE TRUST

Once the trust is created, you need to move your assets into it in order for it to have any effect. Transferring property to a trust involves retitling assets. It can be complicated, and your attorney should help you handle it.

STEP 5: NOTIFY RELEVANT PARTIES

There are some people you’ll need to tell about the trust. First, your beneficiaries should know about it. It’s smart to have an open discussion about the terms of the trust so there are no surprises later and everyone is on the same page about your wishes (and has the chance to ask questions while you’re here to answer them).

If it makes sense for your family, you may even want to bring them in earlier, while the document is being drafted. This gives them the chance to provide input before it’s final (Of course, it can always be updated – but at a cost).

Because you’ve changed ownership of your house to the trust, you’ll also need to notify your insurance provider.

MAINTAINING THE TRUST

REGULAR REVIEWS AND UPDATES

You should take a look at your trust whenever you have a life event and at least every 5 years. You want to make sure it still reflects your wishes and any changes in your life. These are some events that are likely to have an impact on your trust:

• Births and deaths
• Marriages and divorces
• Interstate moves

You’ll also want to make sure you’re titling any new assets in the name of the trust.

WORKING WITH A FINANCIAL ADVISOR

Remember to keep your financial advisor informed when you make changes to the trust (and ideally consult with them in advance). They play a pivotal role in ensuring your overall planning is coordinated.

SEE IF A TRUST CAN MAKE IT EASIER FOR LOVED ONES TO INHERIT YOUR HOME

Putting your house in a revocable trust can help your loved ones avoid probate delays and keep your wishes private. And a revocable trust lets you maintain ownership and control of your property while you’re living. While there are costs, the benefits can often outweigh them.

Your estate planning decisions should align with your financial planning goals. A financial advisor from Edelman Financial Engines can provide guidance and connect you with estate planning experts to help.