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Erik J. Martin is a Chicago area-based freelance writer/editor whose articles have been featured in AARP The Magazine, Reader's Digest, The Costco Connection, The Motley Fool and other publications. He often writes on topics related to real estate, business, technology, health care, insurance and entertainment.
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When you purchase and own a home, your name is on the title to the property, indicating ownership. But you can transfer ownership of your residence to another person or entity in the form of a real estate trust.
Why would you want to put property in a trust? Doing so can make it easier to manage and distribute your assets — including your home — after your death. It can have legal and tax benefits, too. Learn more about how a trust works, different types to consider, the pros and cons of putting your home in trust and more.
A real estate trust is a legal arrangement in which the owner of a home, known as the “grantor” or “settlor,” transfers ownership of the property to another entity or individual, known as the “trustee.” The trustee holds and manages the property for the benefit of the grantor and any named beneficiaries of the grantor’s estate.
“Putting your home in a trust simply means transferring ownership of your home into a trust you have created with a trust agreement,” says Salt Lake City–based real estate and estate planning attorney Justin Cutler. “You transfer your home to the trust by signing a deed that names the trustee as the new owner of the property. The deed then needs to be recorded with the local county recording office. Once recorded, the trustee is now ‘on title’ as the legal owner of the property.”
Typically, the original owner of the home names him- or herself as the trustee so that they can maintain control of the property. Or, the original owner can name someone else as the trustee, such as a relative, friend or attorney, which can be helpful in case the original owner passes away. Trustees are frequently adult children of the homeowner, who will inherit the property upon the homeowner’s death.
“This is often done to ensure that future generations will benefit from the home,” says Rob Fricker, an estate planning attorney in Milwaukee.
Trusts are often used for tax, estate planning or asset protection purposes, as — depending on the type of trust — the property can be protected from creditors and can pass directly to the beneficiaries without going through probate court, says Philadelphia-based attorney Min Hwan Ahn. There are two primary types of trusts that pertain to real estate: revocable and irrevocable.
Also often called a living trust, a revocable trust can be amended or dissolved at any time by the grantor/creator of the trust. “A revocable trust allows the grantor to retain control over the property and make changes to the trust during their lifetime,” says Ahn. “The grantor retains the right to modify or dissolve the trust. They can act as the trustee and manage the property themselves or appoint someone else to do so.”
A revocable/living trust is similar to a will, because it stipulates the original homeowner’s wishes upon death. When the grantor passes away, the property in the revocable trust is distributed to the grantor’s beneficiaries, per the terms of the trust agreement.
An irrevocable trust, as the name implies, is more permanent. It cannot be dissolved or changed by the grantor after it has been created, unless the beneficiaries grant consent.
Revocable and irrevocable are the two most popular trusts used for real estate purposes, says Ahn, but there are others. These include:
Putting your home in trust can provide several perks that make this method of ownership transfer worthwhile.
But putting your home in a trust has its downsides, too.
Whichever type of trust you choose, creating a real estate trust is best done with the help of an attorney. Here’s a breakdown of the basic steps involved:
Putting your property in a trust can be a smart way to ensure smooth transfer of ownership to your beneficiaries after your death, safeguard the property from creditors and lawsuits and avoid probate. But it can be complicated — and expensive. Consult closely with an attorney on your options, and carefully consider whom you might want to name as trustee before committing to a trust.
Arrow Right Contributor, Personal Finance
Erik J. Martin is a Chicago area-based freelance writer/editor whose articles have been featured in AARP The Magazine, Reader's Digest, The Costco Connection, The Motley Fool and other publications. He often writes on topics related to real estate, business, technology, health care, insurance and entertainment.
