A trust is a tool used in estate planning to protect your assets. When you establish a trust, you essentially transfer control of your assets to a trustee, who manages them according to your specific wishes. You can transfer many different kinds of assets to a trust, including bank accounts, stocks or even your home. There are several potential advantages and disadvantages associated with putting your house in a trust.
Avoid Probate
One of the biggest advantages of transferring a home or other assets into a trust is that it allows you to avoid the probate process. Probate is a court-supervised process in which a decedent's assets are inventoried and distributed to their beneficiaries after all other debts are paid. The probate process can last from several months to several years and result in expensive legal fees. A trust allows your beneficiaries to bypass probate entirely.
Reduce Taxes
Transferring your home to a trust can also potentially lessen the amount of estate taxes your estate is subject to, as well as inheritance taxes your beneficiaries may have to pay at your death. For example, putting your home in a qualified personal residence trust allows you to lock in the home's fair market value for future gift tax purposes. If the home appreciates in value, your beneficiaries will only have to pay taxes on its estimated value at the time the trust was established.
Medicaid Planning
If you plan on applying for long-term care assistance through the Medicaid program at some point in the future, transferring your home and other assets to a trust can protect your eligibility. In order to qualify for Medicaid, your income and assets must be within limits established by your state's Medicaid office. Transferring your home to a trust takes these assets out of your name, reducing your total assets for eligibility purposes.
Accessibility
Once you transfer your home to the control of a trustee, it can be difficult or even impossible to reverse the transfer should circumstances warrant it. If your home is held in a living trust, you will have to hire an attorney to dissolve the trust and reform a new one if necessary. If the home is transferred to an irrevocable trust, for example as part of your Medicaid planning, the terms of the trust cannot be altered.
Creditor Claims
Transferring your home and other assets into a trust does not necessarily protect them from creditors seeking claims against your estate. If your home is transferred to a living trust, the property is still considered to be owned by you even though it is legally under the control of the trustee. Even if you transfer assets to an irrevocable trust, the creditor can still bring a claim against your estate during your lifetime.
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Writer Bio
Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.