Trusts are legal tools that can offer many benefits, including protection from creditors and reduced tax obligations. When used wisely, these tools can help preserve family wealth and reduce the risk of surprise bills when transferring assets. One piece of property that can benefit from the use of this legal tools is the family home and other pieces of real estate.
What are the benefits and risks of placing a home in a trust?
One key benefit of putting a home into a trust is the fact that the property can pass directly to the beneficiaries without the lengthy and costly probate process. Many homeowners also value the fact that trusts are not public records, providing privacy concerning the details of your estate. There is also the potential for tax benefits. If the trust sells the home, there is potential for a reduction in capital gains tax obligations. This is because in certain situations revocable trusts may offer a step-up in basis, potentially reducing capital gains taxes upon sale. For large estates, placing a home in an irrevocable trust can also help reduce estate taxes by removing the property’s value from the taxable estate.
Before moving forward with a trust, homeowners should consider the fact that setting up and maintaining a trust can be costly and legally complex.
What are my next steps if I want to move forward?
Placing a home into a trust typically involves several key steps:
- Choose the type of trust: Decide whether a revocable or irrevocable trust suits your needs. A revocable trust allows you to retain control and make changes, whereas an irrevocable trust does not. It is important to note that those who retain control may not be able to make the most of the benefits that are available when using a trust.
- Draft and execute the trust agreement: Work with a legal professional to create a trust document that specifies the terms, trustees, and beneficiaries.
- Transfer the deed: Legally transfer the title of your home from your personal name to the trust by recording a new deed.
It is important to move forward with this process carefully as a failure to comply with all applicable laws can result in unintended consequences. The language used to establish the trust governs the process, so it is essential to make sure the provisions are drafted with your intentions in mind. Boilerplate or do-it-yourself documents can increase the risk of issues in the future.