If you are like many homeowners, your home is likely your family’s most valuable and treasured asset. In light of this, you want to plan wisely to ensure your home will pass to your heirs in the most efficient and safe manner possible when you die or in the event you become incapacitated by illness or injury.

Indeed, proper estate planning is as much a part of responsible homeownership as having homeowners insurance or keeping your home’s roof well maintained. When it comes to including your home in your estate plan, you have a variety of different planning vehicles to choose from, but for a variety of different reasons, putting your home in a trust is often the smartest choice.

In part one, we explained how revocable living trusts and irrevocable trusts work, and we discussed the process of transferring the legal title of your home into a trust to ensure it’s properly funded. Here in part two, we will outline the key advantages of using a trust to pass your home to your loved ones compared to other estate planning strategies.

While both wills and trusts are the most commonly used estate planning vehicles to pass on wealth and other assets to your loved ones, putting your home in a trust has a number of distinct benefits compared to using a will.

One of the primary advantages of using a trust to pass on your home to your heirs is the avoidance of the court process known as probate. Unlike a will, assets held in trust do not have to go through probate. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, with automatic supervision to handle any disputes.

However, probate can be a long and expensive process, which can be emotionally draining for your loved ones. Depending on the complexity of your estate, probate proceedings can drag out for months or even years, and your family will likely have to hire an attorney to represent them, which can result in costly legal fees that can drain your estate. Plus, probate is open to the public, which can make things risky for those you leave behind, especially if the wrong people take an interest in your family’s affairs.

Unlike a will, if your trust is properly set up and maintained, your family won’t have to go through probate to inherit your home. Instead, your home will immediately pass to your loved ones upon your death, without the need for any court intervention. Avoiding the delay of probate can be especially critical when it comes to a home to ensure the property is properly maintained, since the home may fall into disrepair while probate is being completed. 

Finally, unlike wills, trusts remain private and are not part of the public record. So, with a properly funded trust, the entire process of transferring ownership of your home can happen in the privacy of your Personal Family Lawyer®’s office, not a courtroom, and on your family’s time.

In addition to passing on your home to your loved ones when you die, putting your home in a trust can also protect your home in the event you become incapacitated by serious illness or injury. In contrast, a will only goes into effect upon your death, so it would be useless for protecting your home in the event you become incapacitated.

If you do become incapacitated with only a will in place, your family will have to petition the court to appoint a conservator or guardian to manage your affairs related to homeownership, including paying your mortgage and property taxes, keeping up with your home’s general maintenance, and overseeing the sale of your home. Like probate, the process of petitioning the court to appoint a conservator or guardian can be costly, time-consuming, and stressful.

And there’s always the possibility that the court could appoint a family member as a guardian that you’d never want to manage your family home. Or the court might select a professional guardian, putting a total stranger in control of your family’s most precious asset and leaving it vulnerable to crooked guardians, who could potentially sell your home for their personal financial gain.

With a trust, however, you can include provisions in the terms of the trust that appoint someone of your choosing—not the court’s—as successor trustee to manage your home’s ownership and/or sale if you’re unable to do so yourself due to incapacity. For example, your trust could authorize your successor trustee to sell your home in order to pay for the costs of long-term care should you require it.

Because you can include specific instructions in a trust’s terms for how and when the assets held by the trust are distributed to a beneficiary, a trust can offer greater control over how your assets are distributed compared to a will. For example, you could stipulate in the trust’s terms that the assets can only be distributed upon certain life events, such as the completion of college or marriage, or when the beneficiary reaches a certain age.

In this way, you can help prevent your beneficiaries from blowing through their inheritance all at once, and offer incentives for them to demonstrate responsible behavior. And as we mentioned earlier, as long as the assets are held in trust, they’re protected from the beneficiaries’ creditors, lawsuits, and divorce, which is something else wills don’t provide.

If you leave your home to your loved ones using a will and you designate more than one person to inherit the property, there’s a potential for conflict because each individual gets an undivided interest in the home. Given this, these individuals must agree on what to do with the home—keep it or sell it—and they may not see eye-to-eye, which can create unnecessary drama that can tear your family apart.

For example, if one of your children wants to keep the home and live in it, but the other prefers to sell it in order to pay off their debts, the child who wants to sell could go to court in order to force their sibling to sell the property. However, this potential for conflict can be avoided by putting your home in a living trust.

If you name more than one beneficiary for your home in your living trust, you can name a neutral third-party as successor trustee to decide what happens to the home, and then manage the distribution after a clear determination is made. For example, the trustee could allow one child to live in the home, while the other could receive other estate assets of equal value, or the trustee could come up with some alternative solution to stave off the potential for conflict.

In some states you can use what’s known as a Transfer On Death (TOD) deed in order to transfer ownership of your home to your heirs without the need for probate. Initially created as an inexpensive alternative to living trusts, a TOD deed allows named beneficiaries to assume ownership of your home without undergoing probate or trust administration.

However, TOD deeds come with some major drawbacks, and they may end up creating unintended problems for your loved ones. To this end, before you rely on a TOD deed as a cheaper alternative to passing your house via a trust, consider the following factors:

• If your property is held joint tenancy, your joint tenant becomes the sole owner upon your death and has full control of the property, and your TOD deed would be inapplicable.
• Unlike with a living trust, a TOD deed cannot be used to manage, sell, or borrow against the property during your incapacity. This means that if you become incapacitated, the beneficiary of your TOD deed would be unable to access your home in order to sell or refinance the property to pay for your care, as your trustee could if you had the property in a living trust.
• If the beneficiary of the TOD deed is a minor upon your death, a court-appointed guardian will need to be named to control your property until the child reaches legal age. With a living trust, however, the person you named as successor trustee can manage the property until your child reaches legal age.
• Using a TOD deed in order to transfer ownership of your home to try and lower the value of your assets doesn't count as a Medicaid spend-down, so it will not help you qualify for the program. Plus, depending on the state, the property may even be subject to the Medicaid Estate Recovery Program (MERP) after you die. As mentioned earlier, if you want to qualify for Medicaid and protect your home from MERP, meet with your Personal Family Lawyer® to discuss creating an irrevocable trust. 

Given these potential complications, using a TOD deed to transfer ownership of your home as an alternative to a living trust is almost never a good idea. Instead, your Personal Family Lawyer®, can help you find better ways to transfer ownership of your home that will keep your family out of court and out of conflict.

Although putting your home in a living trust can be an ideal way to pass your home to your loved ones, each family’s circumstances are different. This is why your Personal Family Lawyer® will not create any documents until we know what you actually need, and what will be the most affordable solution for you and your family—both now and in the future—based on your family dynamics, assets, and desires.

The best way for you to determine whether or not your estate plan should include a will, a trust, or some combination of the two is to meet with your Personal Family Lawyer® for a Family Wealth Planning Session, which is the first step in our Life & Legacy Planning Process. During this process, we’ll take you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you die or if you become incapacitated.

Sitting down with a Personal Family Lawyer® will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. In fact, we see estate planning as so much more than planning for death, which is why we call it Life & Legacy Planning—it’s about your life and the legacy you are creating by the choices you make today. Contact us today to learn more.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.

If you are like many homeowners, your home is likely your family’s most valuable and treasured asset. In light of this, you want to plan wisely to ensure your home will pass to your heirs in the most efficient and safe manner possible when you die or in the event you become incapacitated by illness or injury.

Indeed, proper estate planning is as much a part of responsible homeownership as having homeowners insurance or keeping your home’s roof well maintained. When it comes to including your home in your estate plan, you have a variety of different planning vehicles to choose from, but for a variety of different reasons, putting your home in a trust is often the smartest choice.

Although you should consult with us your Personal Family Lawyer® to identify the best estate planning strategies for your particular circumstances, in this two-part series we’ll discuss how trusts work (both revocable and irrevocable), and then outline the most common advantages of using a trust to pass your home to your loved ones compared to other planning strategies.

In simplest terms, a trust is an agreement between the “Grantor” (the person who puts assets into the trust) and the “Trustee” (the person who agrees to hold those assets) to hold title to assets for the benefit of the “Beneficiary.” Now, when the trust is a Revocable Living Trust, this agreement is typically made between YOU as the Grantor, and YOU as the Trustee, for the benefit of YOU as the beneficiary.

Why would you want to make an agreement with yourself, to hold title to assets for yourself, for the benefit of yourself? Well, it’s because by doing so you remove those assets from the jurisdiction of the court in the event you become incapacitated or when you die, and instead, you give the power to transfer those assets to your successor Trustee to handle without government or court intervention and keep it all totally private. This saves your family significant time, money, and headache.

While there are numerous different types of trusts available, when it comes to passing your home to your heirs, the two most commonly used trusts are a revocable living trust and an irrevocable trust.

When using a revocable living trust, or living trust, you are free to change the trust’s terms or even terminate the trust completely at any point while you are living, thus the term “living” trust. You typically act as your own trustee during your lifetime, and then you name someone (and ideally more than one someone in succession) as a successor trustee to take over management of the trust when you die or in the event of your incapacity.

At that point, your successor trustee will be responsible for managing the assets, and eventually distributing the trust assets to your chosen beneficiaries according to the instructions contained within the trust’s terms. Because you remain in control of the assets held by a living trust, the assets are still considered part of your estate for estate tax purposes, and assets held in a living trust are not protected from your creditors or lawsuits during your lifetime. This is a very important and often misunderstood point.

A revocable living trust does not protect your assets from creditors or lawsuits, and it has no impact on your income taxes. That said, as long as the assets are held by a living trust, they can be protected from your beneficiaries’ creditors, lawsuits, and even a divorce settlement. More on this below.

The key benefit of a living trust is to pass your assets (including, and especially your home) without any need for court or government intervention, and to ensure your home (and other assets) pass in the way you want, to the people you want.

Unlike a revocable living trust, an irrevocable trust is (as the name implies), irrevocable. This means that the terms of the trust cannot be changed, and the trust cannot be terminated once it’s been executed. When you transfer assets into an irrevocable trust, you relinquish all ownership of the assets, and the trustee you have named takes total control of the assets transferred into the name of the trust. Because you no longer own the assets held by the trust, those assets are no longer considered part of your estate, and they typically won’t be subject to estate taxes upon your death, and they eventually will not be vulnerable to creditors or lawsuits, as long as the trust is properly constructed.

Although avoiding estate taxes and gaining protection from creditors and lawsuits may sound like a huge benefit, irrevocable trusts come with some serious restrictions and can be quite complex to set up. Because you no longer own the assets held in an irrevocable trust and generally cannot change the trust terms or terminate the trust once it’s been executed, putting your home in this type of trust should only be done with very clear and specific legal guidance by a lawyer who specializes in asset protection.

In light of these factors, if you are looking to set up an irrevocable trust in order to qualify for Medicaid, lower your estate tax liability, or for some other reason, meet with us to discuss your options.

For a trust to function properly, it’s not enough to simply list the assets you want the trust to cover. When you create your trust, you must also transfer the legal title of your home and any other assets you want held by the trust from your name into the name of the trust. Retitling assets in this manner is known as “funding” your trust.

Funding your trust properly is extremely important because if an asset, such as your home, hasn’t been properly funded to the trust, the trust won’t work, and your family will have to go to court in order to take over ownership of the property. Given this, it’s critical to work with us, your Personal Family Lawyer® to ensure your trust works as intended. 

While many lawyers will create a trust for you, few will ensure your assets are properly funded. As your Personal Family Lawyer®, we will not only make sure your home and other assets are properly titled when you initially create your trust, we will also ensure that any new assets you acquire over the course of your life are inventoried and properly funded to your trust. This will keep your assets from being lost, as well as prevent your family from being inadvertently forced into court because your plan was never fully completed.

Next week, in part two, we'll continue with our discussion of the benefits of putting your family home in a trust.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.