For many, one’s most valuable asset is their real estate. Whether you own a house, condo or property, you can (and should) add these assets to a living trust. A living trust is a document that acts somewhat like a will. It is typically drafted by an attorney. Along with real estate assets, you would also include assets such as stocks and bonds, bank accounts, small business interests, valuable collections, art or antiques, patents or copyrights, automobile titles, and precious metals or jewelry.
Three entities are involved in the trust.
- The Trustor – The person who created the trust (you)
- The Trustee – The person who manages the trust (you again)
- The Beneficiary – The person/people who benefit from the trust (the people you pass your assets onto once you die, ie. children, charities, friends, etc.)
As the trustor, you decide which assets to place in the trust, control the terms of the trust, and retain and manage the assets while living. When you die, one of two things happen: your spouse can take over the living trust or the assets are passed on to the beneficiaries listed in the trust.
At Jensen and Company we recommend that homeowners establish a living trust which includes their real estate. However, it is best to discuss your personal circumstances with your lawyer to determine what is best for you.
8 Great Reasons For Placing Your Real Estate In A Living Trust
Reason #1: The major benefit of this addition is to make sure the house or other real estate assets doesn’t have to go through probate. This saves the trustee time and lots of money. In general, the more an item is worth, the more it will cost to probate it.
Reason #2: One can add property to their living trust at any time, even if they’re mortgaged.
Reason #3: As the trustor, you can always sell or gift property in the trust. You can also take it out completely or put it solely in your name.
Reason #4: Transferring real estate into a living trust doesn’t require a tax reassessment – even in states that demand a reassessment upon the transfer of title.
Reason #5: Conservatorship can be avoided with a living trust. If the trustee becomes incapable of managing the trust (while still living), they have an established Disability Trustee documented in the trust that automatically steps in to manage the trust for the trustee.
Reason #6: After your death, anything listed in the trust and passed to beneficiaries is private; whereas items listed in a will become public knowledge.
Reason #7: For married couples – if you and your spouse’s estates exceed the federal estate tax exemption or your state’s estate tax exemption, then a living trust can make you exempt from estate taxes. This is done by setting up multiple trusts and dividing the assets between them equally. Of course, this will need to be determined by the lawyer who helps you draw up your trust.
Reason #8: If you die and your spouse takes over the trust, they cannot change the beneficiary of an asset. One example would include a husband dying and his current wife removing children from a different marriage from the trust as beneficiaries.
While you don’t technically own the assets when they are transferred to your living trust (as they are now owned by the trust itself) you maintain full control over them as the trustee. Most living trusts are revocable, meaning you can change the terms at any time in your life or you can dissolve the trust completely. The trust becomes irrevocable once you die, however. It cannot be changed so it is important to maintain your trust and it’s assets as they are bought, sold, etc.