Trusts are important for any homeowner, not just the wealthy.
FIRST, WHAT IS A TRUST?
A trust is a fiduciary arrangement in which a grantor transfers their own property to a third party, or trustee(s), to hold for the benefit of another, the beneficiaries.
Trusts may be revocable or irrevocable, and may be in effect during life or testamentary, to take effect when the grantor is deceased.
WHY PUT REAL ESTATE INTO A TRUST?
1. Avoid probate. This is a big one. When a California property owner dies, most assets not held in Trust must be administered and distributed under court supervision as designated in the decedent's Last Will and Testament. If no will exists, State law governs the administration and distribution. Unfortunately, this process causes delays and can eat up a large portion of the estate.
The costs associated with probate are based on the total value of the asset, not the net value after liabilities. For example, if you own a home worth $1,000,000 but owe $950,000 on your mortgage, the value for probate costs is still $1,000,000. In that case, probate would cost $21,000 in statutory fees, plus court costs and fees. As you can see, probate can be very expensive.
Probate will take between six months and two years to complete. During that time, the asset is held up and has not been distributed to your heirs.
2. Avoid reassessment for tax purposes. Usually, a change in ownership causes the property to be reassessed for property taxes, unless a parent/child or other exclusion applies. Transferring the home to a beneficiary through a revocable trust does not cause reassessment. This means that your beneficiary won’t get stuck with higher property tax payments, even if the home has appreciated in value over the years.
3. Ensure your wishes are honored. With a trust, you have full control over exactly what happens to your property when you pass.
4. Protect your property if you are incapacitated. With a trust, you are able to designate someone to handle your financial affairs, allowing you protection should you become incapacitated.
5. Possible savings on estate taxes. Finally, a trust can help you to save, or avoid, Estate Taxes. For more details on how, contact Elizabeth A. Tresp, Attorney at Law today.
ARE THERE DISADVANTAGES?
The only possible disadvantage is the potential inconvenience imposed by some financial institutions. If you ever need to refinance or sell your home, your financial institution may require the additional step of having you transfer the property out of trust and back to you personally in order to sell it. If you are refinancing, some banks may require you to transfer the property back to you personally for the refinance, and then you can transfer it back into the trust. But doing so is very simple and quick.
Call Elizabeth A. Tresp, Attorney at Law today at 888-814-5552 or email us. We have offices in Solana Beach and Pacific Beach. Protect your home and family with a trust today.