How to Put a House in a Trust

Putting a house in a trust is a nuanced process that requires careful planning to ensure compliance with state laws and alignment with your estate planning goals. This strategic move can protect your property during your lifetime and create a seamless transition of ownership after your passing. Whether you own a primary residence, vacation home, or investment property, understanding the proper steps to transfer real estate into a trust can save your loved ones time, money, and stress.

Trusts require proper administration to be effective. This includes ensuring all assets are properly titled to the trust and maintaining appropriate records.

What Is a Trust and Why Use One?

A trust is a legal arrangement where ownership of assets, such as a house, is transferred to a trustee to manage on behalf of beneficiaries. The trustee holds the legal title to the property while the beneficiaries hold the equitable title, meaning they have the right to benefit from the property according to the terms established in the trust document.

There are some good reasons why homeowners choose to put their property in a trust as part of their estate planning strategy:

• Avoid probate: Assets in a trust bypass the probate process, saving time and money for heirs
• Maintain privacy: Unlike wills, trusts are not public records, keeping your estate details confidential
• Plan for incapacity: A trust ensures your assets are managed if you become incapacitated
• Protect assets: Certain trusts shield assets from creditors and lawsuits

When considering how to put a house in a trust, you’ll first need to decide between a revocable trust and an irrevocable trust. A revocable trust offers flexibility, allowing you to make changes during your lifetime, while an irrevocable trust provides stronger asset protection and potential tax benefits but cannot be easily modified once established.

Taking the time to consider placing your house in a trust can help you understand the benefits and drawbacks, guiding you to create an estate plan that fits the needs of you and your family. 

Steps to Put a House in a Trust

The process of transferring a house into a trust involves several key steps that must be followed carefully to ensure the transfer is legally valid. Here’s a basic guide:

1. Notify Relevant Parties

We believe the best first step is to notify various stakeholders about the change in ownership. You are transferring ownership of the property regardless of whether there is compensation involved. So you want to make sure important aspects of homeownership are not affected. 

• Contact your mortgage lender if the house has a mortgage
• Contact your homeowner’s insurance policy to inform them of your plan and ensure you make the right policy updates after the transfer is made
• Notify any other parties with an interest in the property, such as a home equity loan provider
• Reach out to any local or state authorities that provide any property tax relief programs, such as the “senior freeze,” to make sure the transfer does not affect these benefits

You want to be careful when transferring a home, and it’s better to cover all your bases rather than risk any surprises in the future. For example, mortgage lenders are familiar with transfers to revocable trusts, which should not trigger a “due-on-sale” clause. However, it’s important to confirm this with your lender before proceeding and to comply with their requirements to execute the transaction.

2. Create the Trust

The next step is to establish the trust itself. This requires careful consideration of your estate planning goals and the type of trust that best suits your needs.

• Choose between a revocable trust (flexible, allows changes during your lifetime) or an irrevocable trust (permanent, offers asset protection and tax benefits)
• Work with an estate planning attorney to draft a legally binding trust agreement
• Outline the terms of the trust, naming the trustee(s) and specifying the beneficiaries
• Sign the trust document in the presence of a notary public (sometimes witnesses are also required depending on your state’s laws)

3. Transfer Ownership of the House

Once the trust is established, you’ll need to transfer ownership of your house from your name to the trust. This is a critical step in how to put a house in a trust.

• Prepare a new deed transferring ownership from your name to the trust
• Choose the appropriate deed type (quitclaim, warranty, or grant deed) based on your state’s requirements
• Include the exact legal description of the property as it appears on your current deed
• Ensure the trustee’s name is correctly listed as the new owner
• Sign the deed in front of a notary public

4. Update Property Records

The final step in how to put a house in a trust is to make the transfer official in public records.

• File the new deed and appropriate paperwork with your county recorder’s office or registry of deeds
• Pay any required recording fees (typically $20-$200 depending on your state)
• Keep copies of all recorded documents for your records

Tax Implications of Putting a House in a Trust

Transferring a house to a revocable trust is generally not a taxable event, as you still maintain control of the property. However, irrevocable trusts may have different tax consequences and can help reduce estate tax liability for larger estates. (Here is an FAQ from the IRS if you want to learn more about estate taxes.)

Ongoing Trust Management

If you acquire additional properties in the future, you’ll need to repeat this process to include them in your trust. Regular review of your trust documents is also a good idea, especially if your life circumstances change.

Advantages of Putting a House in a Trust

Understanding the benefits of putting your house in a trust can help you determine if this estate planning strategy aligns with your goals.

Avoiding Probate

One of the main benefits of placing a house in a trust is avoiding the probate process. Depending on your state, probate can be lengthy (lasting 6-18 months) and costly; assets in a trust can be transferred directly to beneficiaries without court involvement.

Privacy Protection

Unlike wills, which become public record during probate, trusts keep your estate details private. This confidentiality can protect your family’s financial information and the specifics of who inherits what. With that said, wills should not include any details about financial accounts and many times do not include specific dollar amounts as to what beneficiaries are receiving.

Asset Protection

Irrevocable trusts can provide significant asset protection benefits, shielding your home from creditors, lawsuits, and certain financial risks. This protection can be particularly valuable for individuals in high-risk professions or with significant assets.

Potential Drawbacks of Putting a House in a Trust?

While there are many benefits to putting your house in a trust, it’s important to consider potential disadvantages as well.

Cost

Creating and maintaining a trust is usually more expensive than drafting a will. The initial setup costs, potential ongoing management fees, and legal consultations can add up.

Complexity

Trusts, particularly irrevocable trusts, can be complex legal instruments. Once established, irrevocable trusts are difficult to amend or dissolve, making it crucial to carefully consider all terms before creation. Please read our article about the Rupert Murdoch succession battle to learn more.

Mortgage Complications

Some lenders may have concerns about transferring mortgaged property to a trust. While federal law generally protects transfers to revocable living trusts, you should always consult with your lender before making the transfer. Irrevocable trusts are even more challenging, with many mortgage companies not allowing the transfer. Once again, always consult with your lender to ask about your specific situation.

Administrative Requirements

Trusts require proper administration to be effective. This includes ensuring all assets are properly titled to the trust, that all the requirements outlined in the trust are followed, and maintaining appropriate records.

Conclusion

Placing a house in a trust can be a key part of someone’s estate plan. While the process requires careful consideration and some upfront costs, the benefits of avoiding probate, maintaining privacy, and potentially reducing taxes could outweigh these challenges.

The process involves creating a trust document, preparing and recording a new deed, notifying relevant parties, and updating property records. Each step requires attention to detail to ensure the transfer is legally valid and accomplishes your estate planning goals.

Given the legal complexities involved in transferring real estate to a trust, working with an experienced estate planning attorney is highly recommended. A qualified attorney can help you navigate state-specific requirements, address potential complications with mortgaged property, and ensure your trust is structured to meet your specific needs and objectives.

If you’re ready to take the next step and reside in New York or New Jersey, The Chamberlain Law Firm is here to help. We provide personalized estate planning services tailored to your ownership interests and financial objectives. Contact us here or call (201) 273-9763 to schedule a consultation.

This article is for general legal information only. It is not legal advice to rely on for your specific fact pattern. No opinion expressed above can be used to avoid tax penalties that may be imposed otherwise on the reader, nor to promote or market to any other person any transaction or matter addressed herein. Advice to rely on can be gotten only after a thorough discussion and investigation of the facts of your situation with counsel licensed in your state. No attorney-client relationship has been established by this communication.