The Advantages of a House in a Living Trust

By David Carnes

A living trust is created by a trust deed and becomes effective while the trust grantor is still alive. During the lifetime of the trust, it is administered by a trustee selected by the grantor. A trust is revocable if the grantor retains the power to revoke it; otherwise, it is irrevocable, and its assets belong to the trust, not the grantor, for tax purposes. There can be certain advantages to putting real estate, like your home, into a living trust.

Avoidance of Probate

If you transfer your house to a living trust, it will not be part of your probate estate when you die. You can specify in the trust deed that the trustee is to transfer the house to your intended heir the day after you die. By contrast, it could take months, or even longer, to transfer title to the house if it passes under your will and a probate court takes jurisdiction over it. If you and your spouse jointly own a house, however, ownership will pass to your spouse when you die with no need for probate, even without a living trust.

Avoidance of Estate Tax

Estate tax is levied on the value of property owned by a taxpayer when he dies. This tax is subject to a large exclusion, however -- at the time of publication, the tax was 35 percent of the portion of the estate's value that exceeds $5 million. If you put real estate into an irrevocable living trust, its value will not be counted as part of your estate for estate tax purposes.

Protect your loved ones. Start My Estate Plan

Title Protection

If you go bankrupt or incur delinquent tax debts, your creditors may be able to place a lien on your house. A lien is a legal encumbrance on the title that can prevent the house from being sold, because a subsequent purchaser will take the house subject to the lien. This risk is particularly acute if several investors own the house as joint tenants -- a creditor of any one of them might be able to cloud the title and render the house unmarketable. Transferring ownership of the house to a trust makes it much more difficult for creditors of the owner to place liens against the house for the debts of a grantor or beneficiary. As a beneficiary, creditors might place a lien against your interest in the trust. However, since a lien against an interest in a trust does not affect the title to the house, the house would remain marketable.

Confidentiality

It is possible to act as both grantor and sole beneficiary of a living trust. If you do this, you can place cash in the trust and have your trustee negotiate the purchase of real estate on behalf of the trust without the seller knowing your identity. If you are wealthy, this might help you negotiate a lower price than would otherwise be possible. The late Walt Disney used this technique to purchase most of the land under Disney World before anyone knew who the real purchaser was.

Protect your loved ones. Start My Estate Plan
Can a Property Owned by an Irrevocable Trust Be Foreclosed?
 

References

Related articles

How to Avoid Illinois Probate Court

Probate is the process of settling a decedent’s debts, using his assets, and distributing what remains to his beneficiaries. The process is overseen by a court and can delay the distribution of assets to heirs as well as be expensive. In Illinois, the estate includes all assets the decedent solely-owned at the time of his death along with any outstanding debts owed to him and any property owned as a tenant in common. In Illinois, a "small" estate -- currently valued at less than $100,000 -- that includes no real estate and has no outstanding debts against it does not have to be probated. For larger estates, there are other ways for all or part of an estate to avoid the probate process.

Can a Bankruptcy Trustee Take Possession of a Home From a Lender?

Bankruptcy can give you a fresh financial start, but under Chapter 7 bankruptcy procedures, a court-appointed trustee can take some of your property and sell it to pay your creditors. Since creditors are primarily interested in getting paid, your bankruptcy trustee may be able to take your house, sell it and pay off your debts with the money from the sale. Alternatively, your lender might be able to regain possession of the home for sale to satisfy your mortgage debt.

Who Is Responsible for a Mortgage When a Spouse Dies Without a Will?

A mortgage is a lien against a piece of real estate and must be paid whether or not one of its owners left a last will and testament when he died. If a spouse dies intestate, or without a will, his estate is settled or probated according to the laws of the state where he lived rather than by his own wishes. His estate pays his debts from his assets, just as if he had left a will. Depending on how the deed to the home is held, this can happen in a few ways.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Can a Lien Be Put Against a Living Trust?

A living trust is created to keep the contents of a will private or to guard against the mishandling of funds intended ...

What Assets to Put in a Living Trust?

The greatest advantage to establishing a living trust is that it avoids having your assets pass through probate when ...

Is Life Insurance Part of an Estate If Not Listed in a Will?

Life insurance is only part of an estate if the policy is not left to a designated beneficiary. It does not matter if ...

How to Transfer a Deed in a Living Trust

A living trust is an arrangement in which you place assets under the care of a trustee for eventual distribution to ...

Browse by category
Ready to Begin? GET STARTED