How to Utilize a Living Trust for a House

A living trust is a legal document that helps you pass down your assets to your beneficiaries when you die. So, what is a living trust on a house? Putting your house in a living trust lets you transfer ownership if you are incapacitated or pass on. The property you transfer into a living trust can help you avoid going through probate in many states. That saves your heirs time, money and keeps your affairs private. Here’s what you need to know about using a living trust for a house.

A financial advisor can also help you set up a trust, as well as any other estate planning needs that you may have.

What Is a Living Trust?

A living trust, sometimes called a revocable trust, is created to hold assets. It usually involves having a legal entity of some kind, often an estate attorney, that can accept the ownership of your home and manage it.

Trusts can also reduce estate taxes or provide legal protection from creditors. The primary difference is that, unlike a will, a living trust can be used to distribute assets before death. There are a few other key differences:

A probate court must certify a will after the owner dies. When the owner of a trust dies, however, it doesn’t require any probate processes to distribute property.
A will allows you to name legal guardians for your dependent children, which you can’t do in a living trust.
You can use a will to specify certain final wishes or guidelines for the transfer of assets. For example, you might use a will to state that your heir receives a smaller inheritance if they are convicted of a criminal charge. You cannot do this with a living trust. A will allows you to make specific, even delayed, inheritances. A trust allows you to immediately transfer ownership of your assets.

A living trust, defined as a revocable trust, applies when you, the trust owner, still have the ability to change or cancel the trust at any point during your lifetime. When you pass on, any trust you created becomes an irrevocable trust. Once a trust has become irrevocable, it cannot change and its contents cannot be altered.

How to Use a Living Trust on a House?

To put your house in a living trust, you actually have to create the trust itself and then transfer the deed to your home. If you already have a living trust, transferring the deed should be relatively simple. Below are eight general steps you could follow to create and use a living trust on a house:

Take stock of your assets. Take a look at the property and assets you have that you want to manage with your estate planning. Then determine what you’ll likely still have by the time you need to establish a trust. This includes financial accounts and real estate, but could also include sentimental items and even pets.
Find an estate planning attorney. Find an estate planning attorney that can advise you on state-specific laws. They should be able to guide you through the set up process and help your heirs navigate the trust after your death.
Specify the current owner of the trust. You’ll need to identify the parties in your trust, from the key beneficiaries to the lawyer you work with. You’ll need to make sure all of the parties are in agreement for it to take effect.
Assign a trustee. You’ll likely need your estate planner or attorney to sign on as the primary trustee, however, you’ll also need a backup if they can’t fulfill their duties during the transfer. Assign a trustee to be in charge of the trust if you can’t yet. You can also name a successor.
Get the deed appointed to the house. There are specific steps to take when you put a house into a trust. You need to have the purchase history and proof of ownership so it can securely be transferred at the time of need.
Gather the documents you need per your state’s laws. You will need to put your will and trust in writing to make them official, so you’ll need to collect your property and financial records.
Draft and sign the trust. Draft the trust and make sure it’s both official and notarized by the parties involved as well as made legal by your local probate laws.
Fund the trust. Fund the trust with your property and financial records to make it official. Often when people don’t fund it, the trust document is null and void.

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When to Use a Trust for a House

A living trust can make sense for a house when you want to simplify how the property is managed during your lifetime and transferred after your death. With a revocable living trust, you can generally name yourself as trustee, continue living in the home and maintain control over the property while you are alive. You can also change or revoke the trust as your circumstances or estate-planning goals change.

One of the most common reasons to place a house in a living trust is to avoid probate. Property properly transferred into a revocable trust can generally pass according to the trust’s instructions without going through the probate process. This could be particularly useful if you own real estate in more than one state, since otherwise your estate may face separate probate proceedings involving property located outside your home state. However, probate costs and procedures vary substantially by state, so avoiding probate does not automatically make a trust the best or least expensive option.

A trust can also provide a plan for managing the house if you become unable to handle your financial affairs. You can name a successor trustee who can step in and manage property held by the trust if you become incapacitated. Depending on the trust terms, that person could handle expenses, maintain the property or take other permitted actions without requiring the same type of court involvement that might otherwise be necessary.

You may also consider a trust when you want more control over what happens to the house after your death. Instead of transferring the property outright to an heir immediately, the trust can specify when and under what circumstances beneficiaries receive or use it. This can be helpful when beneficiaries are minors, when several family members could inherit the property or when you want the home managed for beneficiaries for a period of time.

Bottom Line

A revocable living trust lets you change its terms and beneficiaries or cancel it during your lifetime, as long as you remain legally capable of doing so. After your death, the trustee manages or distributes the property according to the trust’s instructions. A local estate attorney can help you prepare the documents and transfer your house into the trust under your state’s rules. A financial advisor can help you consider how it fits into your broader financial plan.

“Setting up a living trust for real estate can cost thousands of dollars, but it will enable you to cleanly transfer the deed to another person upon your death and maintain privacy, since it bypasses probate. To ensure every step is executed correctly, work with a local estate attorney, and set a reminder at least every two years to check whether your documents need updating, such as in the event of a death or divorce,” said Tanza Loudenback, CFP®.

Tanza Loudenback, CFP® provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Estate Planning Tips

If you’re creating an estate plan, a power of attorney can add another level of protection by appointing someone to help manage financial and legal decisions in your absence. A financial advisor can work with you to pick a power of attorney that fits your estate needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.