While putting your house in a trust has many benefits, there are also some downsides. On the one hand, setting up a trust is time-consuming and can be expensive. The person establishing the trust must file additional legal documents and pay the appropriate legal fees. The second reason has to do with disability planning.
It is a common misconception that estate planning only plans death, but also plans comprehensive estate planning for disability. When you create a living trust, you will appoint a successor trustee. This person is responsible for distributing his assets to his heirs after his death. They are also responsible for intervening and managing your trust assets if you become incapacitated and can no longer communicate.
By putting a home in a trust, you can ensure that one of your most important assets is managed and cared for by someone you trust in case you become incapacitated. The main benefit of putting your house in a trust is that it bypasses probate when you die. All your other assets, whether or not you have a will, will go through the probate process. Creating a living trust is not difficult or expensive, but it requires some paperwork.
The first step is to create and print a trust document, which you must sign before a notary public. It's no more difficult than making a will. In most states, transfers of real estate to revocable living trusts are exempt from transfer taxes usually imposed on transfers of real estate. However, in some states, transferring real estate to your living trust could result in a tax.
See Real Estate in Transferring Titled Property to Trust. While these costs may be significantly lower than those associated with probate, it is important to recognize them and consider whether the value of your estate justifies the expense. For a wealthy estate that might otherwise be subject to a state or federal estate tax, placing assets in a trust can help avoid or minimize estate taxes. Although this may sound like a good thing, it is important to consider all the implications of what it will mean for you to stop being the legal owner of the assets you place in the irrevocable trust.
However, a well-made trust can give you more control over when and how your home is transferred to another person. For example, if you want to put your house in your living trust, you must prepare and sign a new deed, transferring ownership to you as a trustee of the trust (or, in Colorado, to the trust itself). Placing a home in an irrevocable trust can help you qualify for Medicaid by reducing your taxable wealth. In addition, if you are going to put your house in a trust, the successor trustee is the person who will manage your home and any other assets you have placed in the name of your trust if you become incapacitated.
You and any other homeowner must sign the deed before a notary public (for a small fee) to authenticate the deed. If you decide to put your house in a trust, make sure that the instructions in your will and trust agree. In addition to putting a house in a trust, there are other assets you should consider holding in the trust's name. On the other hand, if your house is only included in a will, the contents of the will are made public when it is filed in probate court.
Placing your home in certain types of trusts can also help you qualify for Medicaid by reducing your taxable wealth. You can choose to put only a few vital assets, such as your house, in a trust and let everything else be decided by your will. For example, you could set up your trust so that your house passes to your chosen beneficiaries even before you die. The final step in putting your house in a trust is to register the transfer of ownership with the county clerk's office, which maintains local property records in your area.
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