Your home: It’s where you’ve made precious memories, and it’s probably the most expensive thing you own. Who do you want to take ownership of it when you die? Property has major emotional and financial attachments, which is why it’s at the center of many inheritance disputes. Putting property in a trust is one way of minimizing conflict and maximizing profits for your loved ones. It’s a popular estate planning strategy for good reason – several of them, in fact.
When property is passed to a beneficiary via the deceased’s will only, probate is inevitable. Probate is never a pleasant process. It drags on for months, during which time the deceased’s loved ones might have to make multiple appearances at probate court. Proceedings become part of the public record, so the details of the deceased’s estate also become public.
But the costs are perhaps the biggest downside to probate, at least where property is concerned. It’s common for court and attorney fees to swallow at least 3% of an estate’s value. If your estate includes property, probate can swallow up thousands and thousands of dollars that would otherwise go to your heirs. Putting your property in a trust allows your heirs to bypass probate altogether. Upon your death, your appointed trustee can distribute the property in accordance with your wishes, without having to involve the courts.
If you own property in multiple states and it’s not put in a trust, your heirs will be forced into a legal and logistical minefield. Estate tax liability, insurance proceedings and probate processes vary from state to state. Say you own a home in Massachusetts and a vacation property in New York. Your heirs will have to go through probate twice, once in each state, and will have to hire probate attorneys in both Massachusetts and New York.
It takes a long time to receive property or assets you’re left in a will. Beneficiaries can’t access the assets that were left to them until probate is over, so real property can’t be put into its new owner’s name until that happens. When the heirs disagree about what to do with property like the family home or a beloved vacation house, disputes delay things even more. Meanwhile, the property often sits empty.
By contrast, putting property into a trust allows for a quick transition between owners. The beneficiary you name can take control of the property right away and oversee any maintenance and security issues that arise.
What use is your property to your heirs if it’s seized by your creditors? This outcome is an uncommon one, but it’s possible. Asset protection from creditors is one of the benefits of holding property in an irrevocable trust. Once you move property into this type of trust, it no longer belongs to you – it belongs to the trust. Therefore, it’s not accessible to creditors who come after you.
However, putting property in a living or revocable trust won’t protect it from creditors during your lifetime. Assets held in this type of trust are still owned by and accessible to you, so they’re fair game for anyone who has a legal claim against you. For professionals like doctors who have a high risk of being sued, holding property in an irrevocable trust is a way of shielding it.
Holding property in a trust is a common choice among parents of disabled children, and others who want to provide for disabled loved ones. In order to receive Supplemental Security Income (SSI) and Medicaid benefits, these individuals have to comply with income requirements. For a parent to gift his disabled child a large sum of money or the deed to a home would compromise the child’s eligibility for necessary benefits. The IRS would consider that windfall as part of the person’s income.
Establishing a special needs trust provides a workaround. The property owner can hold the property in the trust and name a trustee to manage it on the beneficiary’s behalf. Assets are the property of the trust so they don’t count toward the beneficiary’s income. This is a highly personal kind of trust, and a lot of factors affect how and when it makes sense to create one.
Unless you’re a specialist in estate planning, making decisions about creating and funding a trust likely seems daunting. These are high-stakes choices, so you have to make them with input from experienced advisors. Contact the estate planning pros at Ladimer with any questions.
Copyright © 2023 Ladimer Law Office PC
209 West Central Street
Natick, MA 01760
Ladimer Law specializes in estate planning. We protect our clients, their heirs, and their assets by listening closely, knowing the law, and executing estate plans that fit and evolve.