You may not be aware that you have an option of buying a home in a trust when you decide to purchase a property. While this is not something that is suitable for everyone, it can be an excellent way to protect against a wide range of variables.
What is a trust?
Buying a home in a trust can protect against certain tax and debt situations that may happen after the purchase. Having the home in a trust could protect against the home being seized due to one of the scenarios mentioned previously.
A trust allows the buyer to be the trustee who takes care of the home as long as they are alive. Once the current trustee dies, the next person in line becomes the new trustee.
The trust has a specific purpose and recognizes the trustee, the grantor, and the beneficiary of an estate as three different positions. However, one person can hold all of those titles and act on specific responsibilities that go along with each role.
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Keep in mind that a trust can include more than one asset. The assets can be bought and added to the trust or donated and added to the trust.
There are times when a real estate property may be placed in a trust to protect the current owner of the home should their health decline. This gives the family member the right to live in the home without fear of financial repercussions in the last years of life.
What is a trustee?
If you’re the one who makes the initial purchase of the property, you become the trustee. You are then responsible for choosing a person to take over as trustee once you are no longer able to do so.
What is a grantor?
The person who is setting up the actual trust is referred to as the grantor. This person may act as the trustee or appoint someone to be the trustee.
What is a beneficiary?
The person who inherits or receives money from the trust is known as the beneficiary. The beneficiary may be the next trustee in line but that does not need to be the case.
What is a Personal Trust?
A personal trust is active during the lifetime of the grantor and remains active after their death. The personal trust can be revocable or irrevocable.
What is a Testamentary Trust?
If the trust is created through the will of someone deceased, it is called a Testamentary Trust and goes into effect when the grantor dies or when the court assigns someone to be the legal representation for the trust.
Should the trust be revocable or irrevocable?
Many people create a trust because they are motivated by the thought of a seamless legal transition of the property from one person to another. However, there may be specific wishes for when the trust changes hands.
What is a revocable trust?
With a revocable trust, the grantor can decide that they no longer want the next trustee in line to receive the property. They can make changes in the trustee and future trustee at will along the way.
What is an irrevocable trust?
While the property remains in the same location and community, there are times when other situations change that impact the real estate. A beneficiary may have financial troubles, lose a job that provided stability, or go through some other hardship.
It’s extremely important to choose the beneficiary and trustees wisely when setting up an irrevocable trust. Knowing which person will stay true to the grantor’s vision for the trust is critical.
What is a trust instrument?
The document that has all the details listed surrounding the establishment of the trust, the duties of the trustees, and the right of everyone involved is called the trust instrument. It may be the will of the person who created the trust or some other declaration.
What about mortgage loans and trusts?
All the safety that you get from a trust does come with a price that could cause the lender to act with some hesitancy when lending against the property that is part of the trust. This means that you may come up against some difficulty in securing a loan for the home or your beneficiary may have trouble refinancing later.
You may find that the mortgage loan company doesn’t want to work with you in regards to the purchase at all. This is partially because of the misinformation and misunderstandings that can surround the legal protections in place within a trust should financial mishaps occur.
While it isn’t impossible to secure a mortgage loan for a trust property, you should be aware that you may be required to go through extra steps in the process. Don’t let this discourage you if you feel strongly about purchasing a home in trust.
What is the cost of a trust?
If a real estate property is purchased and placed in the trust, there may be a transfer duty applied to the transaction. If the property is given to the trust through a donation, there may be a tax that is calculated according to the value of the property.
Setting up the trust can be costly but to some people it is worth the expense. Think of it as a protective barrier against the future costs that could be added to the transfer of the property to the next trustee.
Who should I talk to about a trust?
If you’re looking at a property that is currently in a trust with thoughts of a purchase, we would love for you to give us a call to discuss the details. Let us use our knowledge of the trust laws and current real estate market to help you make an informed decision.
You should also set up a meeting with an estate planner (attorney) and a financial advisor if you’re deciding on whether setting up a trust is the right move for your current and future goals. Each advisor will have something beneficial to add to the talks, and you’ll end up with different views that may help you in the final details.
It’s important to take these steps and consult with professional who have the experience needed to be trustworthy guides. You don’t want to have a clause in the trust that was set up incorrectly when you may not have the ability to make changes in the future to correct the issue.
While trusts are useful in making sure your wishes are upheld and can be useful when it comes to real estate taxes, you should understand completely that the trust is only as good at the personalized setup and the details involved in the actual set-up process.
What are the benefits of buying in trust?
When you purchase a home in trust, you’re banking on the fact that the trust will offer you some peace of mind when it comes to the future of the property. It makes estate planner straight-forward and keeps things in clear focus for those who know what to expect when the trust is transferred to the next trustee.
What is the downside of buying a trust?
Placing real estate into a trust means that you are no longer the only one who has an interest in or owns the home. You will no longer get to be the one in control of everything that happens to the assets in the trust.
Income and properties that are associated with the trust will be taxed at a higher rate than that of those that are listed under general ownership. Again, speaking with a financial advisor is encouraged.
What is the significance of connective words?
Having the terms set up correctly within the trust is critical to making sure the goals of the grantor are met with regards to the trust and what happens in the future. This becomes even more important if there is more than one current or future trustee.
Using the word “and” is recommended when there is more than one trustee and the requirements is that they must make all decisions about the trust as a single unit. This keeps individual trustees from making decisions on their own and without regard to what the others think is best.
Using the word “or” is recommended when there is more than one trustee and the requirements allow each trustee to make decisions and take action independently of each other. Knowing which one to use is important when working on the registration of securities and properties.
Do I need a Taxpayer ID Number?
Yes, you will need a social security number or a number that is associated with your employer to register securities. The social security number must be one assigned by the Internal Revenue Service.
How do I plan an estate using a trust?
The first step is to decide exactly how much control you expect to have over the real estate in trust. Do you want the trust to be revocable or irrevocable?
Next, you want to set up a meeting with your attorney and the financial advisor to discuss your goals and important details you need to consider. Make sure this meeting takes place with both in attendance.
Having both present is important because they each have their own specialties and possess knowledge that is critical to the success of the trust. The attorney may know more about the legal terms used in the document, while the financial advisor will understand more about the tax implications.
Take into account the future of the estate and how much money it will take to maintain the property. Taking this step can help stop future court proceedings between family members and financial strain from future incidents beyond your control.
Conclusion
Purchasing a home in trust can be one way to protect your assets for future generations. The grantor sets up the trust and makes decisions on the terms used within that trust contract document.
The grantor may also be the trustee who is responsible for managing the trust. The beneficiary is the one who inherits the property, and they may or may not be the next trustee for the trust.
We would be happy to meet with you to discuss your needs and real estate goals when it comes to buying a home in trust or setting up a trust for current properties. We also encourage you to speak with an attorney who specializes in estate planning and a financial advisor with experience in working with trusts.
Give us a call today at to set up a time to discuss your current and future real estate goals in regards to buying a home or buying a property in trust. We look forward to working with you to make your goals a reality.
