Why Put Your House in a Trust? 

Read our guide to learn how putting your house in a trust can lead to tax and probate benefits.

Table of Contents:

What is a trust?

How do trusts work?

How much does a trust cost?

Why would a house be owned by a trust?

Who owns the property in a trust?

What are the advantages of putting your estate in a trust?

What are the disadvantages of putting your house in a trust?

Can I sell my house if it’s in a trust?

What are the disadvantages of a trust?

Can you live in a house owned by a trust?

Can property with a mortgage be put in a trust?

How much does it cost to put a home in a trust?

What happens when a house is in a trust?

What does it mean if a house is left in trust?

Summary

What is a trust?

A trust is a fiduciary arrangement in which a trustor gives a trustee the right to manage any assets and properties for the benefit of a third party, who is known as the beneficiary. Normally, when people choose to establish trusts, they do so to protect their assets and to ensure that those assets are sustained and managed for the benefit of the beneficiary. Trusts are commonly used for inheritances and estates as they can also help reduce the taxation that one is meant to pay for. 

• Trusts are legal agreements known as fiduciary agreements
• The Trustor is the individual or party whose assets are to become a part of the trust
• The Trustee is the individual or party who manages those assets and ensures that the trust is distributed according to the wishes of the Trustor
• The Beneficiary is the individual or party who receives part of the fund 

How do trusts work?

Trusts work through an agreement between the trustor and the trustee. In this agreement, the assets and properties of the trustor that get put into the trust are left to the trustee to be managed and distributed according to the trustor’s wishes. Having the assets be put in a trust is oftentimes a great way of reducing the taxation that you’ll need to pay on them in cases of an inheritance. In cases where the trust is part of someone’s inheritance, having all assets in a trust also ensures that the distribution of all assets and properties will be completed according to the wishes of the trustor. 

Benefits of a trust: 

• Gives you greater control over your assets
• Helps reduce taxation costs
• Ensures that assets are distributed as per the trustor’s wishes
• Protection of those assets as a trustee is normally better equipped to manage the assets than the beneficiary would be. 

How much does a trust cost?

Making a living trust can be a fairly inexpensive thing if you decide to do it yourself without hiring a lawyer. Starting the trust may only cost you $30 for the books, but to ensure that what you’re doing is correct you may need to invest a few hours of your time to research and understand how to properly create a trust. Alternatively, you can always hire a lawyer to complete the task for you. Normally, this way of doing it will cost around $1,000 to $2,000. If you have a large number of assets and properties or your trust is relatively complicated you may find that hiring that lawyer will save you a lot of time and stress, which is also something to consider when choosing whether to do it on your own or with assistance. 

Why would a house be owned by a trust?

There are many reasons to keep your house in a trust and most of them have to do with inheritance and probate laws and processes. Having your property included in a trust will allow your spouse, children, or anyone else who is inheriting your assets to inherit the house without having to pay the probate costs. At times those costs can be quite high as they can reach up to 3% of the value of your assets. A trust will also simplify and speed up the inheritance process which is also something to consider when choosing to put your home in a trust. 

Who owns the property in a trust?

One of the most confusing aspects of setting up and having a trust is understanding who owns the assets and properties within it. In all cases, the legal owner of any property in a trust is the trustee, but the trustee can only act in accordance with the legal agreement and terms in the trust to benefit the beneficiaries who are the equitable owners of the property. 

• Legal Ownership is recognized by common law courts
• Equitable ownership is recognized by the courts of equity

What are the advantages of putting your estate in a trust?

Setting up a trust can have many benefits both regarding the financial state of your assets and their management, as well as in cases of inheritance. If you want to ensure the longevity of the assets and properties that you leave behind, and with them, the longevity of your legacy, setting up a trust is a great way of ensuring that all of your wealth will be properly managed. 

Advantages of putting your estate in a trust: 

1. Avoid the probate process

In cases where you pass away having your estate in a trust will allow the beneficiaries to inherit the wealth without having to pay the steep probate costs. 

2. Tax benefits 

Depending on the type of trust that you set in place, revocable or irrevocable, you may find that there will be tax benefits in the future, especially since in many cases assets are protected from an estate tax after the passing of the owner. 

3. Offers greater control of your assets

The Trustee will ensure that your assets and properties are properly handled according to your wishes and the parameters that you set out. This could include stipulations regarding the things that the fund can be used for by the beneficiaries. Trusts can also be used while you’re still living and do not always concern inheritance cases. If you wish to you can set up the trust to help relatives with medical costs or with covering parts of their education. 

What are the disadvantages of putting your house in a trust?

The major disadvantage of putting your house in a trust is that if the trust is irrevocable, you’ll lose control over your property as it will be managed by the trustee. Losing control of your own house may seem scary to some which is one of the main reasons that most people choose not to put their house in a trust. 

Can I sell my house if it’s in a trust?

Selling your house if it’s a part of a trust is completely possible. There are two different ways that you can sell your home. The first one will have the trustee sell the house and the money from the sale will be put straight back in the trust. The second way of going about the sale is to have the trustee transfer the property back to your name and then you can sell the house as normal. Both of these are completely legal processes that unless specifically stated within the trust, should be fairly easy to get approval for to complete them. 

What are the disadvantages of a trust?

The most major disadvantage of a trust is that you’ll lose direct control over your assets and properties. Depending on the wealth that you have amassed having to give control over your assets to a second party can be quite scary. Another disadvantage is the cost of setting up the trust. Still in most cases that cost is quite small and so long as you can sort out the administrative elements of the trust, the cost becomes a fairly unimportant factor in the decision to make a trust.

Can you live in a house owned by a trust?

If you place your house in a trust you should still be able to live in it. Depending on the conditions of the trust that may change as the house is passed down to your inheritors but in most cases, this is something that can be stipulated and predetermined in the terms of the trust. 

Can property with a mortgage be put in a trust?

There is a short and simple answer to this question and it is yes. Any property with a mortgage can still be placed in a living trust. Much like if there was no mortgage in the cases where the house does have a mortgage you can save on the probate costs when it’s inherited by your relative. It’s for that reason quite common to have properties with mortgages placed in a trust. 

How much does it cost to put a home in a trust?

When it comes to your trust the main cost is setting it up. Even then the charge for the legal fees can be quite insignificant when compared to the probate costs that one would need to pay to receive a property as an inheritance. With that in mind, setting up a living trust is often a great way of ensuring that your assets will be well managed and that the process of passing them down will become even simpler. Once the trust is set, putting your home in the trust won’t necessarily cost you any extra money. This is because as you’re setting up the trust, you’ll be able to put your home within it, this is part of the administrative and setting up process for the trust. 

What happens when a house is in a trust?

Once a house has been put in a trust it stops being a property legally owned by the previous owner and instead the trust itself becomes the legal owner of the house and all the assets in the trust. If the trust that has been set in place is an irrevocable trust, then once the house has been placed in the trust the previous owner will no longer be able to claim it. This does not necessarily mean that the previous owner loses all their control since as the trustor they can set specific terms regarding the way that the house is meant to be managed. In many cases, the previous owner can also continue living in the house until their death. These are all terms that may have previously been speculated when the trust was getting set up. 

What does it mean if a house is left in trust?

A trust is essentially a legal agreement that ensures that all assets within the trust will be properly managed and distributed according to the wishes of the trustor. If a house or a property is left as an inheritance to someone in a trust, then that person will be known as the beneficiary. As the beneficiary, they won’t be able to manage the trust or the property left to them but they will be the ones benefitting from it. The trustee who is the legal owner of the property will be legally bound to ensure that the house left to you isn’t only properly managed but also that you receive everything set out in the will of the deceased person. Having houses be left in a trust can be a great way of reducing the probate costs while at the same time allowing the beneficiaries to fully and completely benefit from the assets left to them. 

• If a house is left to you in a trust, you’re the beneficiary but not the legal owner of the property
• The trustee will ensure that the house left to you and any assets associated with it are distributed to you as per the terms of the trust
• The trustee will continue to manage the house as part of the trust according to the terms stipulated within it.
• The trustee is the legal owner of the house

Summary

Having your properties and assets in a living trust can bring many benefits both during your life and after you pass away. In most cases, properties in trusts are carefully managed by the trustee and the beneficiaries can benefit from them in the long run. There can also be many tax and inheritance-related benefits to setting up a trust for all of your assets.