A living trust is a legal document that helps you pass down your assets to your beneficiaries when you die. So, what is a living trust on a house? Putting your house in a living trust lets you transfer ownership if you are incapacitated or pass on. The property you transfer into a living trust can help you avoid going through probate in many states. That saves your heirs time, money and keeps your affairs private. Here's what you need to know about using a living trust for a house. A financial advisor can also help you set up a trust, as well as any other estate planning needs that you may have.
What Is a Living Trust?
A living trust, sometimes called a revocable trust, is created to hold assets. It usually involves having a legal entity of some kind, often an estate attorney, that can accept the ownership of your home and manage it.
Trusts can also reduce estate taxes or provide legal protection from creditors. The primary difference is that, unlike a will, a living trust can be used to distribute assets before death. There are a few other key differences:
- A probate court must certify a will after the owner dies. When the owner of a trust dies, however, it doesn't require any probate processes to distribute property.
- A will allows you to name legal guardians for your dependent children, which you can't do in a living trust.
- You can use a will to specify certain fines or penalties. For example, you might use a will to state that your heir receives a smaller inheritance if they are convicted of a criminal charge. You cannot do this with a living trust. A will allows you to make specific, but delayed, inheritances. A trust allows you to immediately transfer ownership of your assets.
A living trust, defined as a revocable trust, applies when you, the trust owner, still have the ability to change or cancel the trust at any point during your lifetime. When you pass on, any trust you created becomes an irrevocable trust. Once a trust has become irrevocable, it cannot change, and its contents cannot be altered.
How to Use a Living Trust on a House?
To put your house in a living trust, you actually have to create the trust itself and then transfer the deed to your home. If you already have a living trust, transferring the deed should be relatively simple. Below are eight general steps you could follow to create and use a living trust on a house:
- Take stock of your assets. Take a look at the property and assets you have that you want to manage with your estate planning. Then determine what you'll likely still have by the time you need to establish a trust. This includes financial and real estate, but could also include sentimental items and even pets.
- Find an estate planning attorney. Find an estate planning attorney that can advise and represent you on your state-specific laws. You’ll need these documents signed and notarized if they're to take effect.
- Specify the current owner of the trust. You'll need to identify the parties in your trust, from the key beneficiaries to the lawyer you work with. You’ll need to make sure all of the parties are in agreement for it to take effect.
- Assign a trustee. You'll likely need your estate planner to sign on as the primary trustee, however, you’ll also need a backup if they can’t fulfill their duties during the transfer. Assign a trustee to be in charge of the trust if you can't yet. You can also name a successor.
- Get the deed appointed to the house. There are specific steps to take when you put a house into a trust. You need to have the purchase history and proof of ownership so it can securely be transferred at the time of need.
- Gather the documents you need per your state’s laws. You will need to put your will and trust in writing to make them official, so you’ll need to collect your property and financial records.
- Draft and sign the trust. Draft the trust and make sure it’s both official and notarized by the parties involved as well as made legal by your local probate laws.
- Fund the trust. Fund the trust with your property and financial records to make it official. Often when people don't fund it, the trust document is null and void.
Bottom Line
Remember that a living trust on a house can be subject to change, so it's okay for you to adjust the terms and beneficiaries, or revoke it outright, at any time. It will stay in effect until you change it, or until you pass and your assets are transferred to your heirs. To ensure you meet the requirements of your state, it can be a good idea to work with a financial advisor or estate attorney to set up a living trust.
Estate Planning Tips
- If you're creating an estate plan, a power of attorney can add another level of protection by appointing someone to help manage financial and legal decisions in your absence. A financial advisor work with you to pick a power of attorney that fits your estate needs. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.
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