A revocable trust is a powerful document because it allows you to retain ownership of your assets, avoid probate, and distribute them per your wishes. One of the things we continue to stress to people is that creating the trust is only the first half of the equation. The other component, often neglected, is that you fund the trust. This entails transferring your assets into it. Though this applies to any of your assets, we wanted to discuss the dangers of not transferring titles by discussing your home. For most people, their home is their most valued asset. Failing to title your home in your trust puts it at risk of being subjected to probate, defeating one of the primary benefits of having a trust.
The Probate Implications of Not Titling Your Home in Your Trust
When a home is not appropriately titled in your trust, it remains in your name. In other words, this means that the house will likely go through probate upon your death. During probate, the court verifies the validity of your will (if you have one), identifies what you own, figures out what debts you still have (which will get paid through your asset), and then distributes these to your beneficiaries. Your assets get distributed per intestate laws if you do not have a will. Because of how complex family dynamics and multiple marriages become, intestate laws will unlikely align with what you would have wanted.
Probate can take months or even years to complete, and its costs can be significant. These costs may include court fees, attorney fees, and other administrative expenses, which can reduce the value of the estate passed on to your heirs. There are many benefits to having a trust, and one of those is privacy. What happens in probate becomes a public record. Your private affairs, including the value of your estate and beneficiaries, could be exposed to the public.
Challenges With Transferring Real Property Into a Trust
Transferring real property into a trust is not as simple as changing the title on a bank account or a vehicle. If you ever think you have found a shortcut in estate planning, speak to an estate planning attorney first. Even changing the title on a bank account has inherent dangers because it is a method for relinquishing ownership. Trusts, on the other, accomplish the opposite.
When you fund a trust, you (or your attorney) must create a new deed that names the trust as the property’s owner. You can also name yourself the trustee to control the property. The new deed must then be recorded with the county where the property is located. If this step is not completed, the property will not be considered part of the trust and will not benefit from the trust’s probate-avoidance features.
In some cases, failing to transfer the home into the trust properly can also create issues with your mortgage lender or insurance company. Some lenders have due-on-sale clauses in their mortgages, which means that transferring the property into a trust could technically trigger the requirement to pay off the loan. While many lenders are willing to waive this requirement, addressing it before transferring is essential. Additionally, you should notify your homeowner’s insurance company of the transfer to ensure the property remains adequately insured.
Set Up A Trust Properly
If you have not yet transferred your house into your trust or are unsure whether it has been done correctly, schedule a consultation with our office. We can review your estate plan and help you take the necessary steps to protect your assets.
Kevin Tharpe
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- Risks of Failing to Title Your Home in Your Trust - September 18, 2024
