Putting your home in a trust could help your heirs avoid months of court processing. Here are some of the benefits and drawbacks of a trust.
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Creating a will and planning what will happen to your property and belongings after you die isn’t exactly at the top of most people’s weekend plans. Only 33% of people have estate planning documents, according to LegalZoom.
But having a plan for your property could save your heirs a lot of time and stress — and one of the best ways to help them is by creating a property trust. Here are some pros and cons of having your home in a trust.
How a property trust works
First, it’s important to mention that the details we’re discussing in this article apply to a revocable trust, also called a living will. The difference between a revocable trust and an irrevocable one is that while you’re alive, you’re free to make any changes or revoke it.
At a basic level, a property trust ensures that your real estate quickly and easily goes to your designated beneficiary when you die or become incapacitated.
You don’t need a large estate to have a property trust. If you simply want to speed up the process of giving your home to your heir after you die, a property trust could be right for you.
Why you may want to get a trust for your home
Let’s say you have a house that you eventually want to give to your daughter. A property trust can help you do this by naming your daughter as the beneficiary of your home after you die.
The difference between naming your daughter as a beneficiary for your home through a trust compared to a will is that a trust often allows the beneficiary to receive the home without going through a potentially lengthy probate process. In short, passing property to an heir through a trust is generally faster and avoids probate court.
A trust may be especially beneficial if you own multiple properties in different states. For example, if you owned a primary home in New York and a vacation home in South Carolina and didn’t have them placed in a trust, your beneficiaries would have to deal with the probate court in two states, making for a potentially lengthy process.
Not only could a property trust make transferring your home to a beneficiary easier, but it can also help if your will is contested, according to Rocket Mortgage. Having your real estate in a trust can help family and friends avoid fighting over a will because a trust can’t be contested in most cases, according to LegalZoom.
A property trust can also help protect your home if you become incapacitated. If this happens, your designated trustee (whom you name in the trust) would take over without having to involve the courts and can then ensure your beneficiary receives the property.
Additionally, putting your home in a trust keeps the details of your estate private. In contrast, transferring a house through probate court is a matter of public record.
Disadvantages of a trust
While there are a lot of advantages to having a trust, there are a few drawbacks to consider. Creating a property trust can involve a significant amount of paperwork, and it can also be costly.
According to Clever Real Estate, the price for setting up a simple trust starts at around $1,000 and can go much higher for more complex trusts.
Additionally, having your home in a trust may make it more difficult to refinance your mortgage. For example, if you bought a house recently and are planning to refinance to a lower interest rate in the future, you would need to temporarily move your home out of the trust to do so and then move it back into the trust once you close on the refinance, according to Better Mortgage.
You can always check with your mortgage lender to find out how a trust may impact your refinancing plans.
Should you get a trust for your home?
Whether you should get a trust for your home depends on how much time and money you want to spend setting one up, how important it is to you for your beneficiaries to avoid the probate process, and if you’re planning to refinance your mortgage.
Only you can know whether or not the process is worth it for you, but in general, putting your home in a trust likely has more benefits than it does drawbacks.
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