Trust issues — we’ve all got ‘em. But hopefully not when it comes to real estate trusts, because that would create a massive problem with your property and potentially, even where you live.
A real estate trust establishes who gets your property and how they get it. This blog will hopefully clear up at least some of the trust issues you’re facing (real estate, that is). For the other trust issues, well, reading a few Brené Brown books is probably a good start.
Who sets up a real estate trust?
Anyone can set up a real estate trust, but most people do this when they’re older. Homeowners with a high net worth also tend to set up a trust, regardless of age.
Trusts are not the same as wills, but they do function in the same sense. Real estate trusts, like wills, determine who gets your property. This can either happen after you die, or a living trust that gives ownership to someone of your choosing while you’re alive.
A good example of this is if a homeowner is diagnosed with Alzheimer’s and has a house in their name. By setting up a living trust for their partner or other loved one, they give control over to that person who can make decisions when they (the homeowner) no longer can.
What’s the difference between a real estate trust and a will?
Many people think that if they have a will set up, they’re set and don’t need an additional trust. This isn’t always the case. Here are some of the crucial differences between the two:
|– Usually for smaller assets, like your parents’ wedding china|
– Asset distribution goes through the court system
– Available for anyone to view
|– Usually for costlier assets, like a house or rental property|
– Asset distribution is already lined out (no court time needed)
Real estate trusts make it easier to deal with high-end assets.
Houses, vacation homes, rental properties — a trust makes it easier to deal with costlier assets. If you just leave your home in a will, whomever inherits the home will have to go to probate court in order to sell.
Probate court is not only a massive hassle, it’s expensive. It can take months or even years to settle an estate through probate court; trusts cut that time down to just a few weeks. Trusts settle the issue beforehand, making it much easier (and less costly) for the benefactor(s).
Real estate trusts are also cherished for their privacy. Everyone has heard will horror stories — feelings of resentment and jealousy are all too common. Trusts only tell those who are receiving something what they’re receiving; other information is kept private.
Real estate trusts make it easier to split things up.
If there are ever stipulations in how you want to split up assets then a trust is a good way to go. Here are some examples:
I’ll give to…
- My alma mater, as long as they remain an HBC (Historically Black College).
- My children once they reach the age of 40.
- My kids, but not their father.
These are qualifiers that you can’t set up in a will alone; you need a trust.
Is there any instance where I should just stick to a will?
If you don’t have any massive assets or have a straightforward plan worked out with your family regarding your property after you die, a will is just fine. Just keep in mind that if there’s even the slightest chance they want to sell the house they inherited, it will become much more difficult if you only have a will and not a trust.
What is a revocable trust?
There are two types of real estate trusts: revocable and irrevocable.
A revocable trust ensures that, while living, you keep your property and can make changes. It’s still in your name and you’re still responsible for estate taxes.
With an irrevocable trust, nothing can change once it’s set (unless the named inheritor chooses to do so). Similar to the living trust example, a homeowner might set up an irrevocable trust if they have a worsening health condition. The homeowner who set this up will no longer own the house, but won’t have to pay taxes on it, either.
As another example, a person looking to reduce estate taxes or simply donate some of their estate might set up an irrevocable trust as well.
How do you set up a real estate trust?
- Figure out what you want to go into the trust, who gets it, and when (while you’re alive? or after your death?).
- Determine the amount of time you want this to last (some states have rules for how long trusts can exist).
- Choose a trustee — in a revocable living trust, you can be your own trustee. Otherwise you’ll choose someone you trust, who has solid financial management and decision-making skills.
- Find a financial planner or estate lawyer to carry this out.
I’ve inherited a property through a real estate trust. Can I sell it?
As long as there are no stipulations prohibiting you from selling, the answer is yes. Feel free to read up on the RealtyHive selling process to see if listing in a time-limited event is a good option for you.