Titling Your Home in a Trust – What You Need to Know

By Robin Holzschuh, CTFA, TEP, AEP®, ATFA, CFIRS® – Vice President & Compliance Officer

Trusts are powerful tools in estate planning, asset protection, and managing family wealth. They offer customization for specific purposes and provide flexibility over the final disposition of assets. While many grantors fund their revocable living trusts with marketable assets for professional management, they often overlook the advantages of placing their personal residence in a trust. This article explores the benefits and trade-offs of titling your home in a trust to help you make an informed decision.

Let’s review some of the benefits and trade-offs of titling a personal residence in trust.

Avoid Probate and Provide Flexibility

One of the primary reasons for titling a personal residence in a trust is to avoid probate. Probate is the court-supervised process of distributing a deceased person’s assets, which can be time-consuming, expensive, and public. Titling the residence in trust allows the home to pass directly to designated beneficiaries without going through probate, saving both time and legal expenses.

A trust, which is a private agreement, offers more privacy and flexibility than passing property through a will. Trusts allow grantors to define specific terms for how and when their residence is distributed to beneficiaries. This flexibility can be helpful in situations where equal division of property might be complicated. Trusts also allow for long-term control, such as providing a life estate to a surviving spouse while ensuring the property passes to children from a previous marriage upon the spouse’s death.

Incapacity Protection

In the event of incapacity due to illness or injury, a trust allows a successor trustee to manage the property on the grantor’s behalf.  Without a trust, the grantor’s family may be required to go through a court-appointed conservatorship process, which is also public, to manage the residence.

Trust owned property under the management of a non-grantor trustee reduces the grantor’s control over the asset. This means the property can’t be sold or mortgaged without approval from the trustee. Some mortgage lenders are hesitant to provide financing or refinancing when a property is held in a trust.

Tax Planning

While there are no immediate tax benefits for property held in a revocable living trust, beneficiaries may receive a stepped-up basis in the property’s value, potentially reducing or eliminating capital gains tax if they sell it. In some situations, placing the property in an irrevocable trust may offer additional protection from estate taxes or help with Medicaid planning.

Choosing the Best Path Forward

Deciding whether to title your personal residence in a trust involves weighing several benefits and trade-offs. Trusts can provide a smoother transition of your home to beneficiaries, protect your interests in case of incapacity, and offer potential tax advantages. However, they may also introduce complexities regarding control and financing of the property.

It’s essential to consult with an estate planning attorney or financial advisor to determine if placing your home in a trust aligns with your specific circumstances and goals. Professional guidance will help you navigate the complexities and ensure that your estate planning strategy effectively protects your assets and meets your family’s needs.