Should You Place Real Estate in a Trust?

If you are interested in avoiding probate, you might have considered placing property in a trust. You might also have questions about whether the trust will be able to protect from creditors or remove the real estate from your taxable assets. This article reviews some critical details to understand about placing real estate in a trust, but remember that in these situations it also helps to speak with a skilled attorney.

How Trusts Function

Before discussing reasons to place real estate in a trust, it helps to understand some of the most basic terms used in relation to trusts, which include:

• A beneficiary is a person designated to receive assets under the terms of the trust
• A grantor is an individual who establishes and fund the trust
• A trustee is an individual tasked with managing the assets in a trust

Avoiding Probate by Placing Real Estate in a Trust

The main advantage of placing real estate in a trust is to avoid the probate process, which can be both costly and lengthy. Passing real estate to loved ones through the terms of a will, however, results in the assets being subject to various costs. Because the real estate’s owner can access assets in a trust at any time, remember that revocable trusts can not protect the property from creditors. 

Tax Advantages to Owning Real Estate

Placing property in a revocable trust does not result in real estate being subjected to either home sale exclusions or mortgage interest deductions. It is also critical to make sure that transferring property to ownership of a trust does not necessitate a reassessment of property taxes.

Advantages to Inheriting Property in a Trust 

Revocable trusts provide beneficiaries with a step-up basis after the property owner’s death, which is a substantial benefit when compared to lifetime gifts. A step-up basis means that the beneficiary’s tax basis in the property will be the market value of the real estate at the time of the grantor’s death. As a result of the step-up basis, if the beneficiary later sells the real estate, they owe little and sometimes nothing in capital gains tax. If a person gifts a real estate while they are still alive, the property will not qualify for the step-up basis. 

Issues With Title Insurance

Placing real estate in a trust can lead to issues with title insurance. To avoid complications, it is important to make sure that title insurance will still apply to a property if real estate is placed in a trust. It is just as critical to assess whether placing real estate in a trust will trigger any additional terms of an insurance policy. Failure to evaluate these issues before a transfer can leave a real estate owner vulnerable to individuals with adverse interests.

Speak With a Knowledgeable Estate Planning Lawyer

Writing an estate plan is often a challenging process, but it is critical to do so to make sure that each of your goals is achieved. To do so, it can help to retain the assistance of an experienced estate planning lawyer. Contact attorney Jim A Lyon today to schedule a free case evaluation.