Put Your Home in a Trust
Owning a home is a quintessential part of the American Dream. During the excitement and joy of signing closing papers and receiving keys, very few homeowners stop to consider how to protect their home in the event they pass away. One way homeowners can protect their homes, amongst other assets, is to put your home in a trust. Read below for more information on the advantages, as well as the process of transferring your home into a trust.
In the state of California, if you own assets worth over $184,500, these assets may be subject to probate upon your death.[i] As most California homes are worth more than $184,500, they may be subject to probate. Not only can the probate process be confusing and time consuming, but it can also be expensive. People faced with the daunting probate process usually opt to hire a probate attorney to ease their burden. While most attorneys charge an hourly fee, probate attorneys receive a percentage of the value of the probated assets. Meaning, the more assets that go through the probate process, the higher the attorney fee. The best way to bypass probate, and protect your home and other assets, is to place them into a trust.
When it comes to the distribution of your assets, a probate court will assign your assets in a specific order of next of kin. Generally, your assets will go to your spouse, should they survive you, and then to your children, should they survive you, and so on. But what if you want your home to go to a specific child and not the other? Or perhaps you prefer your home be donated to a charity, or you wish to place specific limitations on the person who inherits your home after you pass on, placing your home in a trust allows for you to do any of these things. Transferring your assets into a trust allows you to be a part of the final decision-making process as to the distribution of your assets. As mentioned above, the probate process is complex and time consuming. Smaller estates can generally be settled within several months, but larger estates, including those containing pieces of property, may take several years. On the other hand, administering a trust can take as little as two to three months. This means your heirs can quickly take ownership of your home and avoid issues that may arise by keeping your home maintained during an elongated probate process.
While California does not have an inheritance tax, it does have an estate tax. California residents are also required to pay federal inheritance and estate taxes. As such and depending on the size of your estate, the estate and your beneficiaries may be liable for substantial amounts in tax at the time of your death.
Placing your home in a trust can reap tax benefits. Depending on the type of trust you create, when you put your home in a trust, may decrease your taxable estate upon death. This means your heirs will pay fewer, if any, estate taxes. Specific types of trusts, especially certain types of irrevocable trusts, have other tax benefits as well. While meeting with your estate attorney, discuss the goals, including the creation of tax advantages, for your trust.
When you put your home in a trust, you create a lens of personal privacy. To facilitate the transfer, you must file a new Deed and Preliminary Change of Ownership (PCOR) Form with the County Recorder. These documents allow you to remove your name from the deed and place the asset into the name of the trust. Creating a trust is a great tool to keep your personal affairs private
Concerns About Placing Assets in a Trust
For some, placing their assets in a trust might feel intimidating or concerning, but a trust is a powerful financial tool that has many advantages.
What if I Want to Sell My Home?
The process for selling your home while in a trust is a relatively easy. The trustee, as the controller of the trust, simply signs the deed to the home over to the new owner. Once the paperwork is filed by the County Recorder, the record will show that the home was transferred from the trust to the new owner. There are no additional hoops to jump through.
What if I Want to Refinance My Home?
Depending on the powers designated in the trust, in some cases, the trustee can simply coordinate with the refinancing entity and sign the refinancing documents on behalf of the trust. Unfortunately, for asset protection and homeowner insurance purposes, the language in many trusts do not allow the trustee to simply do the refinance.
However, there is a relatively painless solution to this problem. With the help of your attorney, you can transfer the title of the house from your trust back into your name then complete the refinancing process. Once the refinancing is completed, the house is once again transferred back to your trust. It might seem like a lot of work and a tedious task, but with the right attorney, this matter can be taken care of within days.
How to Place Your Home in a Trust
The first step in protecting your home and other assets with a trust is to meet with an estate planning attorney. Upon meeting with your attorney, be sure to make note of all your valuable assets as this information will be necessary in determining your trust options. There are several different types of trust, each with their own specified purpose and distribution plan. Some trusts are created for specified assets, such as an Irrevocable Life Insurance Trust, while others are more generalized. Your attorney should discuss what you would like to achieve in creating your trust, and how you wish to distribute your assets upon passing. For most families, a standard revocable trust is a great option.
After you decide which trust is best for you, the next step is transferring your home into the trust. Your attorney will draft all the necessary paperwork to do this. In most cases, a new deed reflecting the transfer, as well as the Preliminary Change in Ownership (PCOR) form will be created by your attorney. In situations where the transfer is being initiated for other circumstances, such as an inheritance due to the death of an original property owner, other paperwork may be required. Your attorney will be able to take care of any additional paperwork that might be necessary to complete the transfer.
Once the documents are drafted, all you need do is sign and notarize your paperwork. After the paperwork is finalized, your attorney will ensure your documents are properly recorded with the county recorder, and the process will be complete. For your records, it is important to ask your attorney for the original recorded documents, or a certified copy of the original documents. It is a good idea to store your recorded documents in the same place that you store your other trust documents.
Overall, the decision to place your home into a trust is a big consideration. While there are many advantages, there may be disadvantages. Everyone’s property and financial needs are different, and it is important to create a plan that works best for your individualized situation. The best way to ensure that you are making the right decision for yourself, your family, and your assets, is to speak with an experienced estate attorney. RJS Law stands ready with a free consultation, to guide you through the process.
[i] Cal. Prob. Code § 13151, 13152, 13154
Written by Marley Smith-Peters