How to Put a House in a Trust: A Simple Guide

Owning a home is more than just having your name on the title; it involves careful consideration of future planning, especially in terms of ownership after death.

Transferring your residence to a real estate trust can streamline the management and distribution of assets, including your home, potentially offering legal and tax benefits.

Yet, the process of preparing for the inevitable by putting property in trust is more than a mere legal procedure; it's about ensuring that loved ones are taken care of.

This comprehensive guide will explore the reasons for using a real estate trust, how it works, the types to consider, and the associated costs and alternatives, aiming to provide you with essential insights for making informed decisions about your home and other real assets.

A trust is a legal arrangement or plan that allows a grantor or settlor to transfer their assets to a separate entity managed by a trustee/successor trustee.

This action protects the owner's property and ensures the trustee manages and sustains the assets on behalf of the beneficiaries.

As the homeowner, you will outline your terms and conditions in a legally binding document called a trust agreement or trust deed. Trusts are often used for estate planning, tax protection, or safeguarding your assets from creditors and other third parties.

The following are the two main types of trusts you can choose from:

• Revocable trust: Commonly referred to as living trust, this document permits the grantor to amend, modify, or dissolve the trust while you are alive. Upon your death this revocable trust legally becomes irrevocable, and the assets are distributed according to the specifications.
• Irrevocable trust: As the name implies, you cannot revoke or alter it once created unless under special circumstances and with consent from the named beneficiaries. Using this trust means you give up control over the assets and enjoy more asset protection and tax benefits.

The following table summarizes the benefits and drawbacks of creating any trust.

Creating a trust for a house is relatively the same across all states.

The process is straightforward, but you may need assistance from an estate planning professional to ensure you have included all the necessary information.

The following is the step-by-step process you'll go through regardless of the method you use:

1. Research the two types of trusts and choose one that aligns with your estate planning goals. If you are married, you can also consider if you want to have a single or joint trust.
2. Choose a trustee—preferably someone knowledgeable about trusts and still trustworthy. It is also advisable to select a successor trustee if you name yourself the primary trustee.
3. Choose the person or organization to get the property after your death. Specify the extent of the property they will acquire to avoid confusion and court battles.
4. Consult estate planning specialists to help address all estate planning regulations, avoid tax pitfalls, and customize your trust to meet your needs.
5. Draft the trust document with your legal advisor or use a pre-made online template. California doesn't have a specific form you must use to create a trust, but you are required to adhere to the California trust laws.
6. Sign the trust in the presence of a registered notary public in the state in which the trust assets are held.
7. Hire a real estate expert to evaluate the market value of your house. They should provide a detailed report you can use to address any financial or legal matters.
8. Hand over full ownership of the house to the trust using a warranty deed or quitclaim, transferring the house from your name to the trust's name.
9. Update the property records with your local county recorder's office by giving them the new document that has transferred the ownership to the trust.

Once you complete the process, ensure you keep detailed records of any new transactions and perform periodic reviews to make necessary changes.

Putting a house in a trust attracts mandatory costs and other additional ones that are optional. These costs depend on various factors, such as where you live, the size of your house, the number of beneficiaries, and the type of trust. The following are the general costs you will encounter as you prepare your trust:

• Trust creation costs: $200 to $400 – Includes acquiring documents, notarization, and administrative charges.
• Attorney fees: $1,000 to $2,000 – If hiring a legal professional to oversee the process.
• Appraisal fees: $300 to $600 – For hiring a professional to determine the house's value.
• Trustee fees: $500 to $1,500 – If appointing a professional trustee to manage the trust.
• Transfer taxes and recording fees: $100 to $300 – Varies by county and state.
• Funding costs: $50 to $150 – May include costs associated with retitling the house.
• Trust maintenance fee: $100 to $500 annually – Includes tax return filing, legal, or accounting fees.

After considering the above factors, setting up a trust, and your home into a trust will cost you in the approximate range of: $2,250 to $5,450.

After interacting with this information so far, you could be asking yourself if there are other ways of achieving the same objectives without using a trust. Fortunately, most states offer you alternatives to a trust you can choose from, and they are as follows:

• Joint Ownership: This option involves adding another person to the property title such that when you die, the ownership automatically shifts to the surviving joint owner.
• Beneficiary deed or Transfer on Death (TOD): This document names particular beneficiaries as the new owners of the house upon your demise.
• Last Will and Testament: This document explains how you want all your assets to be distributed, but it goes through the probate process.
• Living trust with pour-over will: It's similar to a revocable trust but ensures any other assets not in the trust are poured over into the trust when you die.

To help you compare these alternatives further, the table below lists some pros and cons of each:

Putting a house in a trust involves various considerations that can have significant implications for both the grantor and the beneficiaries. These implications can differ depending on state laws and individual circumstances.

1. Taxes and State-Specific Laws:

In states like California, transferring a house to a trust may trigger changes in property tax assessment and transfer taxes. Consequently, it is essential to conduct thorough estate tax planning to prevent high tax burdens that could reduce the home's worth.

2. Trustee's Duties:

The appointment of a trustee carries serious legal implications. The trustee must act in the best interests of the named beneficiaries and adhere to the following responsibilities:

• Overseeing the asset held in the trust
• Distributing the owner's property according to the trust agreement
• Keeping up-to-date and accurate records
• Communicating regularly with all parties about the property's status
• Selecting a reliable and trustworthy person who understands how trusts work is vital to avoid negative consequences.

3. Potential Pitfalls and Common Mistakes:

• Many grantors face negative legal implications due to errors in creating the trust, including:
• Selecting the wrong trust
• Failure to fund the trust properly
• Drafting the trust agreement without professional guidance
• Neglecting essential administrative work
• Overlooking changes in circumstances

Understanding the legal implications of putting a house in a trust is paramount. Careful planning, awareness of potential pitfalls, and professional guidance can ensure that all legal and financial aspects are handled correctly.

Ready to Put Your House in a Trust?

Putting your house in a trust is a brilliant way to ensure a seamless transfer of ownership to your loved ones. This action protects your property from creditors and lawsuits. It also avoids the lengthy, stressful, and costly probate process.

However, it can be complicated to successfully create, manage, and maintain the trust without the help of estate planning professionals.

Book a free consultation today and let us assist you in making a comprehensive and up-to-date trust.