Where Should You Store Your Most Significant Financial Asset?
Put it in a Trust
At $44.85 trillion dollars as of the fourth quarter of 2023, real estate is the largest asset class in the United States. That total stood at $8.02 trillion dollars just thirty years before. A properly executed trust can ensure that your assets are distributed according to your wishes after your death. Over the course of three centuries, 779 or more lighthouses assisted mariners in navigating waterways. Those days are over, so should be the days of allowing a court to determine who and how your most valuable assets are distributed. Let's examine the advantages, disadvantages, and procedures for placing your property in a trust.
For most people, the pain point comes when they see their own families going through a terrible probate.
Suppose privacy is the ultimate intent of the trust when you purchase the property. Anne Rhodes, Chief Legal Officer at Wealth.com told me, "You can form a simple revocable trust to hold the property, but you've got to find a trustee and the name of a trust that do(es not) come back to you." A deed must be recorded following the transfer of your real estate into the trust, but as previously stated, your name does not need to appear on any documents.
A trust also has privacy advantages upon the client’s death; it is a private document that never needs to be filed with the court. One can select a property succession plan using a trust. Wills can state how you want to distribute your property, but they must pass through probate. Once in probate, a document becomes part of the public record. You leave written instructions for the distribution of the property through a trust. This avoids probate, and your trustee will carry out your wishes. Additionally, the best method to leave property directly to a minor is through a trust.
"For most people, the pain point comes when they see their own families going through a terrible probate. That's when they realize how important privacy is and how important a well-written and clear estate plan is," stated Anne Rhodes, CLO at Wealth.com. A key benefit of placing your property in a trust is that the property bypasses the probate process when properly executed. Probate is the court process in which your estate is settled, and the proper distribution of assets is executed. In most states, the duration of the procedure is typically between six and ten months. Consequently, the average probate bill costs between 3 and 7 percent of the estate's value.
If you own real property outside of your home state, like a vacation home or rental property, be sure to place these in a revocable trust so that upon your death, your executor is not forced to open probate in multiple states (the state where you lived at the time of your death, and any states where you own real property). By placing all properties in a trust, those who own property in multiple states can eradicate the need for ancillary probate proceedings in each state where they own property.
Insurance companies are having a difficult time figuring out how to rate homes that are owned by entities or trusts.
Nevertheless, the trust procedure may also contain risks. Documentation must be accessible for the trust to function correctly. It is recommended that multiple persons have a copy of your signed and notarized trust or know its location. The average cost of establishing a trust can range from hundreds to thousands of dollars, depending on its complexity. As previously stated, the cost of probate can range from a few thousand to tens of thousands of dollars.
Joe Boyle, Director of Sales at Fearnow Insurance, noted a possible conflict. "The con is that you may have to buy liability separately. Your homeowner's insurance typically comes with liability. When your home is owned by a Trust or LLC, you will most likely will have to purchase your liability insurance through another company. This increases the cost of homeownership. Some carriers will list the trust as an additional interest but not an additional insured. There are still others who will do both. It's a tricky thing. Insurance companies are having a difficult time figuring out how to rate homes that are owned by entities or trusts."
I concluded the discussion by asking Anne Rhodes, CLO at Wealth.com, about the disadvantages of depositing property in a trust. She mentioned "non-U.S. property" while stating that there weren't many. “Do not put it in (a) US trust without speaking to a lawyer from the country where that property is located.” Countries like China and Mexico have property laws that make it impossible to hold their real property in a US trust.
That's a lot to digest, but putting the property in a trust is the simple part. The creation of the trust will be accompanied by a schedule detailing all its current assets. The title to the property will be transferred to the trust, making the trust the new owner and the trustee the new custodian. Depending on your state, you will use either a quitclaim deed or a transfer deed to convey the property's ownership to the trust. The Garn-St Germain Act of 1982 prohibits a lender from requiring a mortgage repayment if the property is your residence, as the property transfer into a trust you own is permitted. The local government's reassessment of the property should fall into the same category as your trust. Contacting your homeowner's insurance provider, mortgage holder, title company, and local government before or shortly after transferring your property to the trust can prevent future complications.
You can create a trust on your own, but you should consult with an attorney if you have a complex estate or properties in multiple states or countries. There are three components to a trust. Name of the Trust, Date of the Trust, and Trustee's Name; if anonymity is desired, omit your own name. Also, sign and notarize all documents; it lessens the opportunity for a disgruntled individual to question the validity of documents discovered stuffed in a couch or filing cabinet.