Hey REIers, check this out…
A survey revealed that about 75% of Americans don’t have an estate plan — which could spell trouble for your investments if something unexpected happens.
How so, you might ask?
Well, putting a house in a trust can help you avoid probate, reduce estate taxes, and keep your financial affairs private.
Sounds pretty appealing, right?
Today, we’ll explore putting a house in a trust, why you’d want to, the advantages and disadvantages, different types of trusts, and step-by-step instructions on how to do it.
By the end, you’ll see just how beneficial putting a house in a trust can be for your REI business.
What Is a Trust Property?
Okay, let’s begin by breaking it down…
A trust property is any asset held within a trust, managed by a trustee for the benefit of designated beneficiaries. Basically, putting a house in a trust means you’re transferring its ownership from yourself to the trust itself.
This means the trust legally owns the property, but you or someone you appoint (the trustee) manages it according to the trust’s terms.
Putting a house in a trust is like giving your property a legal guardian who looks out for its (and your) best interests.
Why Put a House in a Trust?
Whelp, think of it as adding an extra layer of security and control over your REI business.
By placing your rental property or flip into a trust, you’re gaining significant privacy and asset protection by putting a house in a trust. You’re also protecting it from probate — which is the lengthy legal process of validating a will.
This keeps your financial moves under wraps, so nosy neighbors and prying eyes won’t know about your holdings. For a real estate investor, this means less downtime and fewer legal hassles.
Plus, putting a house in a trust gives you more peace of mind, knowing you are safeguarded against potential legal claims… and your hard-earned properties are easily passed on to the next generation.
Advantages & Disadvantages of Putting a House in a Trust
Advantages
- Privacy Protection: Trusts can keep your ownership details private, shielding your assets from public records and prying eyes.
- Avoiding Probate: Putting a house in a trust can bypass the probate process, saving time and legal fees for your heirs.
- Asset Protection: Trusts offer a layer of protection for the beneficiary against creditors and legal claims, safeguarding your investments.
- Control Over Distribution: You can set specific terms for how and when your properties are distributed to beneficiaries, ensuring your wishes are followed.
Disadvantages
- Initial Setup and Maintenance Costs: Establishing and maintaining a trust can be expensive, with legal fees and administrative costs adding up.
- Complexity: Navigating the legal complexities of putting a house in a trust can be challenging and likely requires professional advice.
- Limited Flexibility: Once assets are placed in a trust, making changes can be cumbersome and legally complicated.
- Potential Tax Implications: Depending on the jurisdiction, putting a house in a trust may have different tax treatments that could impact your financial planning.
Types of Property Trusts
Alright, let’s dive into the 2 main types of property trusts you can use for putting a house in a trust:
Revocable Trusts
A revocable trust is a flexible option that allows you to maintain control over your property while you’re still alive.
Think of it as a “living” trust that you can alter, amend, or even dissolve if your circumstances change. This type of trust is particularly attractive if you’re someone who likes to keep their options open.
For example, let’s say you set up a revocable trust for your rental property.
You can change the beneficiaries, sell the property, or add more assets to the trust without much hassle. It’s like having a safety net that you can adjust as you go along.
Irrevocable Trusts
On the flip side, an irrevocable trust is a set-it-and-forget-it kind of deal…
Once you place your property into an irrevocable trust, you lose control over it — meaning you can’t modify or revoke the trust without the beneficiary’s consent.
While this may sound like a downside, the benefits can be substantial, especially in terms of asset protection and tax advantages.
Yes, it requires a bigger commitment up front. But the peace of mind and potential savings can make it a smart move for many real estate investors.
How to Put a House in a Trust
Here are the general steps to follow when putting a house in a trust to make sure your property is protected and your REI business stays on track:
- Choose the Type of Trust: Decide between a revocable or irrevocable trust based on your needs for flexibility, control, and asset protection.
- Consult an Attorney: Seek advice from a legal professional who specializes in estate planning to draft your trust document and ensure everything is set up correctly.
- Name the Trustee and Beneficiaries: Designate who will manage the trust (the trustee) and who will receive the benefits from it (the beneficiaries).
- Create the Trust Document: Work with your attorney to create the trust agreement, detailing how your property will be managed and distributed.
- Transfer the Property Title: Change the title of your house from your name to the name of the trust. This usually involves filing a new deed with your local county recorder’s office.
- Update Your Insurance: Inform your landlord insurance company about the trust to ensure continuous coverage and adjust the policy if necessary.
- Notify Your Lender: If you have a mortgage, you’ll need to notify your lender about the transfer and ensure it doesn’t violate any terms of your loan.
- Fund the Trust: Make sure all relevant assets (including your house) are officially transferred into the trust, completing the process.
Bottom Line – Putting a House in a Trust: Why & How
So there you have it… putting a house in a trust can be a major step for your real estate investments.
From avoiding probate to keeping your financial matters hush-hush, the benefits are clear. Sure, there are some downsides like costs and complexity, but the advantages often outweigh them.
Bottom line?
If you’re serious about safeguarding your investments and making life easier for your heirs, putting a house in a trust is worth considering.
Ready to give your REI business that extra layer of protection?
It’s time to trust the process… literally.
