After purchasing property, individuals may consider adjusting their estate plan to account for what happens to it when the buyer becomes incapacitated or passes away. One option is to place the property in a trust, which has several pros and cons. Understand the benefits and disadvantages of putting your house in a trust and learn how a Minnesota and Florida elder law and estate planning attorney from Roulet Law Firm, P.A. can assist individuals with their legal issues by calling our Minnetonka, MN office at (763) 420-5087 or our Venice, FL office at (941) 909-4644.
What Is a Trust?
In simplistic terms, the Internal Revenue Service (IRS) defines trusts as relationships where one individual or entity holds a property’s legal title with the view of using or keeping this property to benefit others. Since trusts fall under state laws, consulting these before establishing one is advisable. For instance, Chapter 736 of the 2015 Florida Statutes outlines the trust laws in Florida, whereas Chapter 501C of the 2022 Minnesota Statutes provides the trust laws in that state.
While popular among the wealthy, all individuals can use trusts as part of their estate planning. When creating one, the settlor or grantor, who is the person establishing the trust, dictates how they want to distribute their assets to their beneficiaries. They then appoint a trustee to manage these assets, who can be the settlor, a family member, a trusted friend, or another party.
Why Do Rich People Put Their Homes in a Trust?
Rich people frequently place their homes and other financial assets in trusts to reduce taxes and give their wealth to their beneficiaries. They may also do this to protect their property from divorce proceedings and frivolous lawsuits. They may also do this to avoid probate, thereby keeping their affairs private during any period of incapacity or after their passing.
However, trusts are not just for the rich. In fact, most middle class families should consider using a trust as well to avoid probate, keep their affairs private, and protect their assets.
Is It Worth Putting Your House in a Trust?
Here is why placing a house in a trust can be worthwhile:
- Avoid probate: This refers to the process where a court ensures a deceased individual’s estate pays its debts and legally distributes its assets minus any court costs, inventory and legal fees, and other expenses. Probate is a costly procedure that has the potential to last several months or even years.
- Maintain privacy: Since property within a trust is not subject to probate, the trust’s contents remain private. This means knowledge of the trust’s assets is only available to a select few, including the beneficiaries, grantor, and trustee. Individuals may want to prevent their property from undergoing probate as this public process enables anyone to see an estate’s size, its liabilities, and learn about the estate’s asset distribution, potentially attracting creditors, fraudsters, and disgruntled heirs.
- Asset protection: A properly designed trust can also protect the assets in it from creditors, predators and failed marriages. In addition, a properly designed trust can protect the assets in it from long-term care and nursing home costs.
What Are the Disadvantages of Putting Your House in a Trust?
The key disadvantages of placing a house in a trust include the following:
- Extra paperwork: Moving property in a trust requires the house owner to transfer the asset’s legal title. This involves preparing and signing an additional deed, and some people may consider this cumbersome. However, if you create a trust with our office, we prepare the paperwork you will need to put your home into the trust as part of your plan.
- Additional investment to set up the trust: Since there is more legal work involved in setting up a trust versus just using a will, trusts generally cost a bit more to set up. However, trusts tend to be less expensive overall by avoiding probate upon your passing.
What Are the Negatives of a Trust?
The main negative of a trust is that it tends to be a bit more expensive to set up. However, when you consider that it avoids probate, it tends to be a less expensive option overall. It also has the additional benefit of keeping your affairs private and can be used to protect your home and assets from taxes and other expenses. A specific type of trust can also be used to protect your home and life savings in the event you or a spouse require long-term care or go into a nursing home.
Discover more about putting your house in a trust and find out how a Minnesota and Florida-based elder law and estate planning attorney can help by contacting Roulet Law Firm, P.A. for a consultation.
What Kind of Trust Does Suze Orman Recommend?
Suze Orman’s trust recommendations vary depending on an individual’s circ*mstances. Below are the differences between irrevocable and revocable trusts, which are two trust types they recommend, and how these can benefit different people.
Revocable Trusts
Revocable trusts allow settlors to adjust the trust’s terms whenever they please and ultimately control the trust’s assets. Say, for example, that they place their house in a trust, they can then sell the property or remove it from the trust at any time. For these trusts, the assets within them remain part of the grantor’s taxable estate, meaning it receives no creditor protection. However, they do avoid probate. They can also be structured to minimize taxes and to protect assets you leave to your children and grandchildren in the event they get divorced, get sued, have poor money management skills, or require some additional protection or oversight.
Irrevocable Trusts
Grantors opting for these trusts lose their ownership rights to the assets within them. They lose the ability to decide how to manage or sell these assets. This loss of ownership means the assets are no longer part of the settlor’s taxable estate, protecting the assets from creditors.
These trusts are suitable for individuals who want to avoid large tax bills once they pass away. As indicated by the IRS, the federal estate tax exemption for 2023 is nearly $13 million. However, it is set to sunset to $5 million in 2026. And, Minnesota’s estate tax exemption is only $3 million.
These trusts can also be used to protect your home and life savings from long-term care and nursing home costs; which can be a substantial benefit to middle class families.
Can Property Left in a Trust Be Sold?
To sell property left in a trust, it is first necessary to speak to the trustee to determine how to make the sale happen, and gaining approval from the trustee might be a requirement to proceed. Assuming the trustee grants this permission, the following steps entail locating a property buyer using an agent or house-buying firm, negotiating a price, and then drafting an agreement to outline the sale’s terms for the buyer and trustee to sign.
After signing, the trustee signs the deed over to the purchaser to complete the sale and the buyer pays the sales price. Finally, the trustee gives the beneficiaries the sale details.
Contact an Elder Law and Estate Planning Attorney Today
Understanding the pros and cons of placing houses and other assets in a trust can help individuals make informed decisions when formulating estate plans. Consider contacting a seasoned attorney to discuss your elder law and estate planning requirements. Learn more about putting your house in a trust and other legal issues by phoning Roulet Law Firm, P.A. at our Minnetonka, Minnesota office at (763) 420-5087 or our Venice, Florida office at (941) 909-4644.
If you would like to learn how to protect your home and life savings from long-term care and nursing home costs,click here to download our FREE guide Save our Home: How to Protect Your Home and Life Savings From Long-Term Care and Nursing Home Costs.
And, if you would like to learn how to make it as easy and inexpensive as possible for your family to manage your affairs during incapacity and after passing, while ensuring your assets only go to whom you want and how you want,click here to register for our FREE online masterclass.
