Should I Put My House in a Trust? The Pros and Cons
Your home is likely one of your largest financial assets and and a meaningful emotional investment. If you’ve chosen to pass your cherished home to a loved one, you’ll want to do so in a way that protects their privacy while maximizing any financial benefits. And while you might have several options – gifting the house during your lifetime, selling it or using a Transfer on Death deed – you might also be asking, “Should I put my house in a trust?” We spoke with Baird Trust Counsel Dani Fowles about this strategy’s advantages and disadvantages.
Choosing to put your home in a trust has both positives and negatives. Perhaps the biggest benefit is that it can help your loved ones avoid probate. The probate process not only requires time, money and effort – it also makes your private information public, including the contents of your will and an inventory of everything in your estate, as well as their respective values. Plus, if you have a home in more than one state, putting each home in a trust can help avoid opening an ancillary proceeding, in which your assets go through two different probate processes based on the state in which they were owned.
A trust can also be a great option if you’re looking to avoid the headaches that can accompany home ownership. Once the house is in a trust, it become s the trustee’s responsibility to maintain it – that can include tasks like yard care, installing a new roof and maintaining insurance and bills. This also means that the trustee has the final say on all modifications to the home – something younger beneficiaries living in the home might come to resent. While with a trust you retain authority to put conditions on how and when the property passes to your heirs, it may also complicate your ability to refinance the mortgage, should you have one.
What else should I know about putting my house in a trust?
There are generally two categories of trusts you might consider for your house. A revocable trust typically lets you control its assets and modify its terms during your lifetime. If the asset’s value increases over your lifetime, you get a step-up in cost basis at death, which can reduce capital gains taxes should it be later sold – all while maintaining privacy over the assets and their recipients. An irrevocable trust limits your ability to make changes to the trust and control its assets, but it does offer more protection from creditors and can help you mitigate estate taxes.
If you decide to put your house in a trust, be sure to also include all other large assets, so you can limit the assets that will pass through probate. Be also sure to share your decisions about your trust with your family. Your Baird Financial Advisor can help you decide if a trust is the right solution for you.
Baird Trust Company (“Baird Trust”), a Kentucky state-chartered trust company, is owned by Baird Financial Corporation (“BFC”). It is affiliated with Robert W. Baird & Co. Incorporated (“Baird”), an SEC-registered broker dealer and investment advisor, and other operating businesses owned by BFC. Neither Baird nor Baird Trust provides legal services. Clients must work with their own attorneys to draft estate planning documents. Please consult with your Baird Financial Advisor about your own specific financial situation.
