If you were to ask homeowners what their most valuable and treasured asset was, most would agree that their family’s home is the most important asset they possess. Therefore, it is crucial to plan wisely to ensure your home will pass to your heirs in the most efficient and safe manner possible after your death or incapacitation, and having an Will and Trust is an excellent way to go about doing so.
In fact, one could say that having a proper Will and Trust is as necessary to being a responsible homeowner as having homeowners insurance, or keeping your roof maintained. There are many ways to plan for your home in Wills and Trusts planning, but for a variety of reasons choosing to place your home in a trust is often the smartest choice.
Last week in part one, we explained how revocable living trusts and irrevocable trusts work while also describing the differences between them. We then went on to discuss funding, the process of transferring the legal title of your home into a trust to ensure that it is properly protected by the trust. This time, in part two, we will outline the key advantages of utilizing a trust to pass your home to your loved ones compared to other Wills and Trusts planning strategies.
The Benefits of Putting Your Home In A Trust
Most people associate leaving behind wealth, property, and other assets to loved ones after dying with a will, but trusts also deserve to be considered as a viable and sometimes more beneficial method of accomplishing this. Putting your home into a trust has a number of distinct benefits compared to using a will.
A primary advantage 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. Furthermore, probate is open to the public, leaving a public record 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 and other assets 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.
Protection Against Incapacity
A trust does more than pass on your home and other assets to your loved ones after you have died. Trust can also protect your home in the event you become incapacitated by serious illness or injury if you have properly funded it. 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. Similar to probate, the process of petitioning the court to appoint a conservator or guardian can be costly, time-consuming, and stressful.
And there is always the possibility that the court could appoint a family member as a guardian that you would 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. A will can leave your home vulnerable to untrustworthy 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.
Control Over Asset Distribution
As part of a trust, 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. Thus, 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 squandering their inheritance all at once and offer incentives for them to demonstrate responsible behavior. Additionally, as we mentioned earlier, as long as the assets are held in trust, they are protected from the beneficiaries’ creditors, lawsuits, and divorce, which is something else wills don’t provide.
Avoiding Family Conflict
With a will, if you designate more than one person to inherit your home, there’s a potential for conflict because each individual will receive an undivided interest in the property. Given this, these individuals must agree on what to do with the home—keep it or sell it—and they may not agree, which can create unnecessary tension that can burden your loved ones.
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.
Same scenario: you name more than one beneficiary for your home, but you do so in your living trust. In the 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.
Transfer On Death Deed
Another alternative you may have heard about is a Transfer on Death Deed. 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. This Deed was 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. Sounds similar to a trust, right?
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.
Find The Solution That’s Right For Your Family
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 Will and Trust 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 Wills and Trusts planning solutions to fit with your unique asset profile, family dynamics, and budget. Contact us today to learn more.
This article is a service of Levi Alexander, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.