Why Should I Put My Home in a Living Trust? 

Key takeaways

• A living trust is an estate planning arrangement that specifies who will manage your assets if you become incapacitated, and who will inherit them after you die.

• In the meantime, you retain complete control over the assets. You may also modify or revoke the trust at any time.

• The main advantage of setting up a living trust over drafting a will is that your heirs don’t have to go to probate court.

• Putting your home in a living trust can affect your home equity lending options, but there are ways to work with a trust if you need to access your home equity. 

Putting your home in a living trust can help you avoid the probate process, but it may complicate home equity lending options. Here’s what you need to know. 

What is a Living Trust and How Does it Work?

A living trust is a legal framework for designating where and to whom your assets go after you die. Most assets — such as real estate, bank accounts, investments, and insurance policies — can be transferred to the trust. With the right setup, you should be able to retain full access to your assets. 

A living trust is a revocable trust, which means you can modify, dissolve, or rescind a living trust at any time. For example, you may take your home out of the trust, sell, or refinance the property as you see fit. 

When you set up a living trust, you become its settlor or grantor, and you fund the trust by retitling your assets in the name of the trust. 

Typically, you assign yourself as the trustee, allowing you to keep full control over the assets and manage them as you wish. You also need to name the trust beneficiaries. These are the people who will inherit the assets after you die, such as your spouse, children, or grandchildren.

Finally, you will designate a successor trustee. This person will manage the trust after you die or become incapacitated, including settling your estate and distributing the assets to the beneficiaries. 

Can You Put Your Home in a Living Trust?

Yes, you can put your home in a living trust. Putting your home in a living trust can make life a little easier for your heirs after your death by avoiding the expensive and time-consuming probate process. 

There are some advantages and disadvantages to consider when you’re thinking about placing your home in a living trust.

Pros and cons of putting a home in a living trust

Pros

• You avoid probate: Probate is a legal process in which a court ensures that your estate doesn’t owe any debts and your heirs get a fair distribution of the assets after you die. All wills must go to the probate court, but living trusts don’t. 

• Cost savings: Probate is expensive. The total fees typically range between 3% and 8% of the estate’s total value. In contrast, the average attorney fees for setting up a living trust can be as little as $1,000-2,000.
• Time savings: The probate process can take several months, or even years if anyone contests a will. A living trust enables your heirs to receive your assets in weeks, or even days.
• Privacy: Probate proceedings are public. Anyone can look up the size of your estate, the names of your heirs, what they’ll get and when they’ll get it, how much debt you owe, and more. Potential heirs and creditors may contest your will. In contrast, the contents of a living trust remain private. 

Cons

• May require professional legal help: You may need to hire an attorney to draft the trust and retitle the assets. 
• Often time-consuming and expensive: Attorneys are expensive, but it also takes time to set up the right trust structure and fund it with the appropriate assets.
• May not be eligible: Not all homes are eligible for a living trust. Certain types of deeds may not be transferred to a trust.
• Doesn’t protect your home from creditors: A revocable living trust won’t protect your home from creditors. 

Does a Living Trust Affect Home Equity or Financing Options?

Placing a home in a trust may affect your home equity financing options. Many lenders require either:

1. A trust document review, or
2. The home be taken out of the trust before they’ll lend on it.

If your trust is a living trust, it’s considered revocable, and you can temporarily retitle the home to your original name so you can qualify for a loan. After the loan is closed, you can switch the title back into the trust.

Living Trust vs Will: Which is Better for Your Home?

Living trusts and wills are both legal structures, but they serve different purposes. You’ll likely need both. 

The major difference between a living trust and a will is that your assets (including your home) won’t go through probate when they’re placed in a living trust. It’s likely better for your heirs because probate can be a costly, time-consuming, and public process. If you don’t want everyone knowing how much your home and business are worth, you’ll likely want a trust. 

Some other key differences are outlined in the table below.

How to Put Your Home in a Living Trust

To place a property in a living trust, you need to do the following:

• Set up the trust. Draft a trust document outlining the trustee, successor trustee, beneficiaries and terms upon which they will receive the assets.
• Prepare a new property deed. Copy the old deed and update the necessary information.
• Notarize the deed. You and any other property owners must sign the deed in front of a notary public to authenticate it.
• File the deed. Record the property transfer with your county clerk’s office.

Unlocking Home Equity With or Without a Trust

If you’re a homeowner thinking about estate planning, you also may have considered tapping into that equity for immediate cash needs. A home equity agreement (HEA) may be a good option. 

With a HEA, you get a lump sum of cash now, and the home equity agreement provider receives a share of your home’s value when you end the agreement. There are flexible income and credit score requirements, and you don’t make monthly payments.

Conclusion

Putting your home in a living trust helps your heirs by avoiding probate. At the same time, you still maintain control over your home, and if you need to get a loan, there are ways to do it. 

If you’re looking for a way to access your home equity without monthly payments, an HEA may be the answer.