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A trust is an estate planning tool that can make it easier to pass your assets, including your home, on to your heirs. Putting a house in trust can simplify the process and might also offer some tax advantages. But there are upfront costs to consider, along with other potential downsides. Placing your house in trust is a big decision that may or may not align with your long-term goals. Here's what you need to know so you can decide if it's the right move for you.
What Is a Trust?
A trust fund is designed to hold assets on behalf of beneficiaries. These assets can include real estate, personal property, investment accounts, bank accounts and businesses. They technically belong to the trust, but if you opt for a revocable trust, you can make changes at any time (more about this in a moment).
Trust funds aren't reserved for the uber wealthy. Anyone can use them to ensure a smooth transfer of wealth from one generation to the next. Trusts also have potential tax benefits.
Important Trust Terms to Know
For each role in a trust, there can be one or more people. These are the core participants in a trust:
- Grantor: The person who establishes the trust and decides how assets are to be managed and distributed
- Trustee: The person who manages the trust according to the grantor's wishes
- Beneficiary: The person, group or organization that will eventually receive trust assets
Learn more >> What Is a Trust?
How Does Putting Your House in a Trust Work?
Placing your house in trust can give you more control over how and when your home is transferred to your beneficiaries. While you could use a will to clarify who will inherit your home after your death, your loved ones will have to wait for your will to be validated through the probate process. During this time, a probate court will confirm the legitimacy of your will and authorize your chosen executor to fulfill their duties.
This process can delay the transition of your home to your beneficiaries—especially if your will is contested. One upside of having a trust is that you can likely avoid probate. That can allow your home to quickly change ownership.
Types of Trusts to Consider
If you're thinking about putting a house in trust, you'll need to decide which type makes the most sense for you. Consider these two types of trusts:
- Revocable trust: This type of trust allows you to amend the trust whenever you'd like. You may choose to appoint a new trustee, change your beneficiaries or pull your home (or other assets) out of the trust at any time. You can also serve as trustee during your lifetime.
- Irrevocable trust: You relinquish ownership of assets placed in the trust—and making changes after that point can be difficult. Setting up an irrevocable trust can be complex, but trust assets are protected from creditors. That means creditors can't come after your home if you pass away with debt. It can also reduce estate taxes and help you qualify for certain government benefits during your lifetime because the home is no longer in your name.
Learn more >> Revocable vs. Irrevocable Trust: What's the Difference?
How to Put a House in a Trust
An experienced estate planning attorney can help you establish a trust for your home and answer specific legal questions. Putting a house in trust involves the following steps:
- Decide between a revocable and irrevocable trust. Each one can affect your financial situation in different ways. Ask yourself how much control you want to have over the trust and if you want the ability to change who will inherit your home.
- Choose a trustee. This may be a family member, trusted friend, attorney or financial advisor. If you establish a revocable trust, you can serve as your own trustee.
- Select your beneficiaries. Who do you want to inherit your home when the time comes? That may be one person, multiple people or even a charitable organization.
- Prepare trust documents. An estate planning attorney can walk you through the details and ensure these documents meet all necessary legal requirements.
Learn more >> What Is a Trustee and What Are Their Responsibilities?
Should I Put My House in a Trust?
Whether or not you should put your house in a trust depends on your financial situation and long-term goals. Below are some potential benefits and drawbacks to consider:
Pros
- You can likely avoid probate. Probate can be lengthy and costly. With a trust, your beneficiaries will likely assume ownership of your home faster. And trusts can protect your privacy since probate is a matter of public record, so all the individual assets in a trust won't be listed.
- Irrevocable trusts have financial perks. Since your home is owned by the trust, it won't be included in your estate when you die. That could significantly reduce estate taxes. Your home will also be protected from creditors in the event that you leave behind debt.
- You'll have more control over your assets. If you put your home in a revocable trust, you can modify your plans and make adjustments as needed during your lifetime.
Cons
- Irrevocable trusts are inflexible. It isn't easy to modify this type of trust after it's established.
- Revocable trusts have their downsides. Trust assets are not protected from creditors, and this type of trust will not reduce estate taxes.
- A trust can be more complex and expensive than a will. The process of establishing a trust will likely cost more than drafting a will. Trusts can also be complicated and will likely require an estate planning attorney.
The Bottom Line
Putting a house in trust is usually more involved than simply leaving it in your will, but doing so may be worth it. It can allow your heirs to sidestep the probate process and inherit the home faster. But for better or worse, it's a decision that could affect your financial situation while you're still alive. It's wise to consult an estate planning attorney before making a decision.