Ensuring the seamless transfer of your family home to your loved ones is a crucial aspect of responsible homeownership. Just as you invest in homeowners’ insurance and regular maintenance, estate planning should be a top priority. This two-part series aims to shed light on why placing your family home in a trust is often the most intelligent choice, although it is essential to consult an attorney to determine the best strategy for your unique circumstances.

Understanding Trusts

At its core, a trust is an agreement between a “Grantor” (the individual contributing assets to the trust) and a “Trustee” (the person responsible for holding these assets) to manage the assets for the benefit of the “Beneficiary.” When dealing with a Revocable Living Trust, this agreement is typically established between you as the Grantor, you as the Trustee and you as the Beneficiary.

It may seem peculiar to make such an agreement with yourself, but this approach removes these assets from the jurisdiction of the court if you become incapacitated or pass away. Instead, it grants the power to transfer these assets to your successor Trustee privately, eliminating the need for government or court intervention, which saves your family significant time, money, and stress.

Types of Trusts

When it comes to transferring your family home to your heirs, the two most commonly used trusts are the Revocable Living Trust and the Irrevocable Trust.

Revocable Living Trust

With a Revocable Living Trust, you retain the freedom to modify the trust’s terms or terminate it entirely while you are alive, hence the term “living” trust. During your lifetime, you typically serve as your own trustee, and you designate someone (preferably more than one person) as a successor trustee to manage the trust when you pass away or if you become incapacitated. The successor trustee’s responsibility is to oversee asset management and distribute trust assets to your chosen beneficiaries according to the trust’s instructions. It’s important to note that assets held in a living trust are considered part of your estate for estate tax purposes and are not protected from your creditors or lawsuits during your lifetime.

The primary advantage of a living trust is the efficient and private transfer of your assets, especially your home, without requiring court intervention. It ensures that your assets pass to your chosen beneficiaries according to your wishes.

Irrevocable Trust

In contrast, when you transfer assets into an irrevocable trust, you relinquish ownership of those assets, granting the named trustee complete control over them. Consequently, these assets are no longer part of your estate, and they are typically exempt from estate taxes upon your death. Additionally, they become shielded from creditors and lawsuits, provided the trust is correctly structured.

While the prospect of avoiding estate taxes and safeguarding assets from legal threats may appear appealing, irrevocable trusts come with significant constraints and complexities. If you are contemplating establishing an irrevocable trust for reasons such as Medicaid qualification or estate tax reduction, it is crucial to consult with legal experts who can advise you on the best course of action.

Transferring Your Home into a Trust

For a trust to function effectively, you must not only identify the assets to be included but also transfer the legal title of your family home and other assets into the trust’s name. This process is known as “funding” your trust. Properly funding your trust is essential because assets not funded to the trust may require legal proceedings for your family to assume ownership.

Collaborating with an attorney is crucial to ensure your trust works correctly. While some lawyers can set up a trust, few go the extra mile to ensure your assets, including your home, are titled correctly during trust creation. This step, along with consistently adding new assets to the trust, safeguards your assets, preventing potential legal complications due to incomplete planning.

In the upcoming second part of this series, we will delve deeper into the advantages of placing your family home in a trust, addressing important considerations for responsible homeownership and estate planning.

This article is provided by your local estate planning attorney, Corina Colan.

The Law Office of Corina I. Colan / (909) 265-3315 / [email protected] / www.colanlegal.com