A living trust can be good for your home and other assets.
The last will and testament is the most commonly recognized estate planning document.
It is certainly important to have a last will and testament for nominating guardians and distributing assets through probate.
Some people find this document sufficient to meet their estate planning goals.
Others require greater control and protection.
According to a recent Yahoo Life article titled “Why You Should Put Your House in a Living Trust,” a living trust is a wise choice for certain families and for certain assets.
What is a “living trust”?
A living trust is basically a three-party contract whereby the trustmaker gives legal authority to a trustee to manage the property held by the trust for the beneficiaries of the trust.
Most commonly, when a living trust is created, the trustmaker, trustee, and beneficiary are one and the same person.
People choose to plan their estates with living trusts for a number of reasons.
A living trust can avoid probate over assets belonging to the trustmaker.
It also ensures the assets are distributed according to the specific wishes of the trustmaker.
Because the living trust works outside of probate, it can reduce time and paperwork in the distribution of assets.
Under certain instances, it is possible to reduce or avoid estate taxes and inheritance taxes.
People do not need to be wealthy to utilize a living trust, but they should be avoid common mistakes made when real estate has been transferred to the trust.
What are common mistakes?
Failing to retitle your home.
If your estate plan relies on your house being held in your trust, you will undermine your plan if you do not retitle your home.
You will want to transfer the deed or retitle the home in the name of your trust.
Failing to do so means your home will be excluded from the provisions of the living trust, without probate.
Failing to notify tenants of the ownership change.
Is the property your are titling a multi-family home?
If yes, you may have tenants who pay rent.
You will need to inform these individuals of the change in ownership because this will impact their rent payments and landlord arrangements.
To receive rent, you will need to set up a bank account in the name of the living trust.
Failing to tell the insurance company of ownership change.
Your home insurance company will need to know about the change.
If you fail to tell them, then the company may deny any claim made because the living trust as the owner of the property is not insured.
Let you property insurance company know that your living trust should be identified as an additional insured by endorsement on the policy.
Failing to tell the bank holding the mortgage of the intended transfer.
Note: the Yahoo Life article is incorrect here, when it warns about triggering the “due on transfer” clause in your mortgage when transferring your owner-occupied primary residence to your revocable living trust.
In reality, such transfers are protected from accelerating the mortgage by federal law, specifically the Garn-St. Germain Act of 1982.
Making mistakes is common without the help of a professional.
Work with an experienced estate planning attorney when creating and funding your living trust.
Reference: Yahoo Life (Jan. 10, 2022) “Why You Should Put Your House in a Living Trust”