Should I put my house in a trust?

You’ve probably heard the term “trust fund kid.” Trusts, however, aren’t just for the super wealthy. A trust is just an arrangement that allows a third party (a trustee) to hold your assets on behalf of a beneficiary. Anyone with property or personal assets can benefit from a trust. 

For many people, their most valuable asset is a house and putting it into a trust can be extremely useful part of an estate plan — trusts can easily and more seamlessly distribute the house to your beneficiaries after you die  compared with a will. 

2 main reasons to use a trust

Most people who put their homes in trusts do so for one of two reasons. One reason is to allow their beneficiaries to be able to inherit the house without going through a lengthy, expensive probate process after death. Without a trust, divvying up assets could take months and cost a not-insignificant percentage of the estate value. With a trust, a home also transfers to heirs in a private setting soon after death. The terms of a last will and testament, by contrast, become public record.

The second reason people put their home in a trust is to plan for incapacity. Unfortunately, it’s impossible to rule out dementia or Alzheimer’s as you age, and creating a living trust allows you to name someone — a successor trustee — who is responsible for distributing assets if you become incapacitated and can no longer communicate, such as when you’re in a coma. With a house in a living trust, you ensure that it is taken care of by someone you have confidence in to carry out your wishes for the house and any other trust assets.

Even if you have a will that dictates what will happen with a house after you pass, a trust provides a faster, more efficient way to transfer your assets to heirs. Well-planned estates often utilize both trusts and wills, with the most vital assets (like a house) in a trust and everything else decided by a will.

What are the advantages of putting my house in a trust?

Putting your house in a trust is a good way to prepare your estate to go to your designated heirs. There are a number of reasons why putting your house in a trust is a good idea.

Avoid probate fees

Probate is the legal process through which the court ensures that your debts are paid and your assets are lawfully distributed after your death. Before your heirs can receive your assets though, the court levies legal fees, executor fees, inventory fees (county taxes), and other costs — reducing the ultimate inheritance received by your family. You could pay more if you end up hiring an estate lawyer and need to go probate court and if you own property in multiple states, your family might face multiple probate proceedings and multiple rounds of fees.

Get your property to your heirs faster

The probate process can take months to complete, and could even go as long as years depending on the complexity of what you leave behind. As such, the most significant benefit of estate planning is that it protects your family from a lengthy, expensive probate process. Putting your house in a trust ensures that it will pass quickly and seamlessly to your designated inheritor(s).

Keep matters private

Probating a will is public, so anybody can see the size of the estate in question, where debts are owed, who will receive assets, and when they will receive them. That can invite other potential heirs to contest a will, or attract creditors and fraudsters.

Because a living trust avoids probate court, your assets remain private. When your house is only included in a will, but not a trust, then the entire will’s contents become public when it enters probate court allowing people to search records and find out who you left your house to.

When you put your house in a trust, only the beneficiaries of the trust will see the specifics of your estate, and that’s only after your death.

Protect your assets and reduce estate tax 

With trusts you can't change, called irrevocable trusts can provide you with asset protection. That means your property, including your house, is protected against creditors in case you're sued and can't be used to satisfy your debts. These types of trusts are also useful if you want to leave your house for someone who has special needs and or doesn't have the best financial responsibilities. They also have the added benefit of minimizing taxes and helping you qualify for your benefits like medicaid. 

Protect against incapacity

You don’t alway have warning of impending mental or physical incapacity. A living trust is a powerful insurance policy to protect your family from conservatorship or a messy, court-mediated probate process. Conservators are people appointed by the court to manage your finances, and they may not always be who you want. In the worst cases, they may pilfer your funds, though legally they aren’t supposed to mismanage your assets .

You can avoid giving the government any say over your estate whatsoever with a trust. Living trusts, created during your lifetime, allow you to appoint a power of attorney to manage the trustee’s estate when you’re not able. That means you can give someone trustworthy, whether a family member, close friend, or attorney, control over your finances. Once you’ve recovered your faculties, you can resume control as the trustee.

Help your family move on

Some people might cherish a house they’ve inherited. Others might not be able to keep up with the maintenance costs and property taxes. If a home is put in a trust, it’s much easier for inheritors to assume ownership and sell the home if it doesn’t fit into their future plans.

Alternatively, the trustee can hire a real estate attorney to sell the property or set up a trust sale — a public auction for a property placed within a trust. In this scenario, the trustee provides criteria for purchase offers and the highest bidder who meets those criteria may purchase the home, with proceeds going to the designated beneficiaries. This eases the burden on grieving families who may not want to deal with such matters during a difficult time.

→ Learn more about selling inherited property

What are the disadvantages of putting my house in a trust?

The advantages of putting your house in a trust outweigh the disadvantages but there are a few drawbacks to consider.

You face the upfront burden of setting it up

Estate planning takes time and money. Putting a home in a trust requires hiring a professional to complete and file the proper paperwork. To get your legal ducks in a row, you’ll need to change the title of your home to show that the property is now owned by a trust, which requires preparing and signing a new deed to transfer ownership to yourself (or another designated party) as trustee of the trust. A lawyer will help you with this process, but they’ll charge you for their services. Plus, you might want to add other assets to the trust in the future, which will require more paperwork and legal expenses.

Anything not covered by a trust will wind up in probate. Generally, it’s worth the time and money you’ll put in upfront to establish a trust to avoid probate in the future.

You need to to maintain accurate records

If you transfer property into or out of the trust, you’ll need to keep meticulous written records to show how the trust has changed. It’s not difficult, but it will require some organizational skills and attention to detail, especially if you’ve had your trust for a long time.

Say the home you put in a trust is an investment property on which you earn rental income. You can report any income you receive from a property held in a trust on your personal tax returns. There’s no need to separate income tax records if you’re both the grantor and trustee of the trust, but you will need to keep track of such earnings.

How do I put my house in a trust?

Ultimately, the advantages of putting your home in a trust far outweigh the disadvantages. So, how do you do it? The process of transferring your home into a trust is a fairly straightforward process that involves opening a trust by creating a trust document, and then retitling your home into the trust.

Decide what kind of trust you want to open 

There are two main types of trust, revocable and irrevocable trusts. The terms of a revocable trust can be changed, but those of an irrevocable trust cannot, except under narrow circumstances. A revocable trust is appropriate for most people who just want a safe way to pass down their house and other personal assets, but an irrevocable trust are helpful if you want to achieve other measures, like protecting a life insurance policy, helping to qualify for government benefits, or restricting a beneficiary's spending. You can consult an estate planning attorney to help set it up properly. 

Designate a trustee

The trustee is the person responsible for carrying out your wishes in regards to the trust. With a revocable trust, the grantor (person who opens the trust) can actually name themselves as the trustee. If you open a revocable living trust and act as trustee, you’ll retain rights to manage all of the money, property, and assets within the trust while you are alive. That means you can add property to the trust in the future, sell a home managed by a trust, remove the home from the trust, and basically use the assets within the trust as you see fit. 

But remember to appoint a successor trustee who may step in if you’re no longer able to manage the trust.

Name your beneficiaries 

Decide who your beneficiaries are, the people or entities that will receive your home and how it will be divided and when. Beneficiaries can be whoever you want, and you can even choose an organization or institution, like if you wanted to leave your house to charity. Just make sure to be specific in naming who should receive the house by including their full name, their relationship to you, and any contact information if you want, in the trust agreement. 

You can also name a secondary or contingent beneficiary — someone to receive your house and assets if the primary beneficiary you named isn’t able to for any reason.

Fund the trust

In order for your trust to work you need to fund it with assets. But the trust isn’t a physical entity, just a legal one, so to put your home in a trust, you have to change the owner from yourself to the name of the trust. That means using a deed to transfer the title from your name (John/Jane Doe) to the trust’s name (John/Jane Doe, living trust). 

When you die, your family won’t have to go to probate court and your succession plan will follow through as you wished it to. Your appointed successor trustee will manage the trust from there and distribute the trust property, including your house, to your designated beneficiaries.

Transferring your house into a trust also won't trigger a due-on-sale clause.