Trusts are legal instruments that help individuals manage their assets while at the same time providing an efficient way to distribute these assets to beneficiaries upon the grantor’s demise. Trusts come in many shapes and forms and are an increasingly popular way for Americans to plan their estates and avoid lengthy probate procedures that come with other traditional mechanisms of estate planning. Among the assets that could be held in trust are real estate assets such as houses. If you have wondered about what happens to a house in trust after death of the grantor, here is what you need to know about this.
Understanding Trusts and Real Estate
As indicated above, many types of trusts a grantor looking to hold real estate in trust can utilize. There are revocable living trusts, which are legal instruments that enable the grantor to have complete control over the assets that are held in the trust. In this example, the grantor can still manage aspects of the house and could even sell it if they so choose. Because the trust is revocable, a grantor could revoke the entire trust, essentially restoring complete ownership of the house to themselves.
While this type of trust is favored for the control and flexibility it gives grantors, there are some downsides to it as well. The main one is the fact that assets under this type of trust have full tax liability. This means that any interest, or income (for example rent) is liable to taxation. The upside is that the control you have over your assets means that you can take advantage of market conditions. For example, you could sell the house if property prices rise.
The second type of trust that one could establish for real estate assets is an irrevocable trust, This is the complete opposite of the irrevocable living trust and once assets are turned over to this kind of trust, the grantor loses complete control over the assets. While some people may have an issue over losing control of their assets, the upside to this is that the estate is treated separately from the grantor for tax purposes. This means that the grantor no longer has tax liability over assets held in such a trust.
One of the things to keep in mind is that when a house is put under a trust, the trust, as a legal entity, takes ownership of the house. This process is often referred to as titling the house in trust. In the case of a revocable living trust, this process can be reversed if the trust is revoked by the grantor. In the case of an irrevocable trust, the process cannot be reversed.
What Happens to A House in Trust after Death of the Grantor?
Several options could be pursued, depending on the wishes of the grantor. This will also vary depending on the number of beneficiaries and so on. One of the reasons why trusts are so popular is the fact that since there is already an identified beneficiary, there is no need for a probate process. This ensures that any transfer of assets takes place smoothly. Here are some scenarios after the death of a grantor:
Single Beneficiary
If there is only one single beneficiary for the house, then the transfer process is fairly seamless. Ownership passes on to the beneficiary. In some circumstances, the beneficiary may pay capital gains tax in case they ever sell the house.
Multiple beneficiaries
In the event of multiple beneficiaries, then there is the possibility that the house may be sold, and the money shared between the beneficiaries. There is also the possibility that the house could be co-owned by the beneficiaries. This is often the case, especially if the house is being rented out or is being used for commercial purposes. The third possibility is a buyout, where one beneficiary buys out the other beneficiaries by paying them an agreed amount commensurate to the value of the house.
Trustee Managed House
In this scenario, the direct management of the house continues to be exercised by the trustee, but this is done on behalf of the beneficiaries. In such a case, the trustee will pass on all income gained from the house minus all expenses to the beneficiaries for an agreed period. This is typically the case when the beneficiary is a minor and has no legal guardian.
Benefits of Trusts for Real Estate Planning
Apart from eliminating the need for lengthy probate processes, having a trust as part of estate management ensures that there is a seamless transfer of assets to your beneficiaries. Trusts, depending on the type that you go for, will also make it possible for you to continue managing and even benefiting from your estate while at the same time enjoying the peace of mind that in the event of your demise, your beneficiaries will; not struggle with a lengthy probate process.
The other reason to consider having a trust when it comes to estate planning is the fact that the trust allows you to think through all aspects of your estate planning, ensuring that nothing is left behind. This makes it a lot easier for the beneficiaries, who do not have to struggle to find their assets. Another great reason to consider using trusts as instruments of estate planning is the fact that they create provisions for diverse scenarios such as the case when a beneficiary is a minor, in the case where there are multiple beneficiaries, and so on.
Work With Experts
When you are considering putting your real estate assets under a trust, it is important to contact estate planning experts such as Nevada Trust Company. We specialize in providing trustee and custody solutions, offering expertise in asset protection trusts, self-directed retirement services, and comprehensive wealth management strategies tailored to clients both internationally and domestically.
This is because any mistakes in the setup of your trust can have serious repercussions for you and your beneficiaries. You may lose the tax protection that trusts offer, essentially exposing you to tax liability. Mistakes could also lead to the trust being voided, which means your beneficiaries could end up going through a long probate process. If your house is not properly titled, it could fall outside the assets held in the trust, which in turn means that all the benefits that you would get from your trust will be voided as far as that property is concerned.
At Nevada Trust Company, we understand estate planning and can help you navigate the process of estate planning. We have been in operation since 1995, and we have helped many individuals create a seamless process of distributing their assets after their demise. Talk to our financial experts today to begin the process of planning for your estate.
