Many people put their homes in a revocable trust, and the most common trust is a living revocable trust. This is a good estate planning idea for a couple of major reasons. First, a living revocable trust avoids the need to probate your estate. I was an attorney for 20 years, but I always told people, “avoid attorneys if you can.” They are expensive, and the “justice” system is not so just.
Years ago I recall seeing the statistic that the average probate took 18 months to settle. During that time, your home, your investments, your money, and all you assets cannot be distributed to your heirs. They are tied up in a lengthy and expensive probate proceeding. You can avoid probate by using a living revocable trust. If your kids have to probate your estate, all the attorney’s fees and legal expenses are coming right out of your heirs’ pockets. Who wants that?
Advantages of a Revocable Trust
Secondly, there is another big reason to use a revocable trust to avoid probate. You save all that time for the sake of your heirs. Instead of waiting for a year or a long time to receive the money or assets you leave them, they have access immediately with a revocable trust. Assets can be distributed or sold by the successor trustee without a legal proceeding. How great is that?
Now here is the key to using a revocable trust when you buy a home. You can use one when you buy a home as long as you’re not getting a personal loan to buy the home. Home loans are made to individuals or to a husband and wife, not to trusts. The solution is to close the transaction with your loan, and then you can immediately use a Quit Claim Deed to transfer your real estate into the revocable trust. In Washington State, you will not incur any transfer taxes for doing that.
And here’s a rare but possible twist to buying a home with a revocable trust. I had clients who were married later in life, so each had adult children from prior marriages. They each had wisely completed their own independent living revocable trust. When they bought their new home, they wanted those two trusts to stay intact. That makes sense, but legally that can get messy. A husband and wife will purchase a home as either “joint tenants with the right of survivorship” or “joint tenants with undivided equal shares” or perhaps some other share as they might agree based on how much each puts into the house from separate funds. But . . .
A Revocable Trust or Two?
If title to the new home is to be in the name of two trusts, the legal relationships that husband and wife can have do not apply, and there needs to be specific language defining how the home will be handled upon the death of the second spouse. A revocable trust will normally state that the home will continue to be controlled and lived in by the surviving spouse, but after the death of that surviving spouse, what will happen if there are two independent trusts with completely different family heirs in each trust? This is where there needs to be a master trust or an umbrella trust to clarify what will happen. After the death of the husband and wife, will the heirs on both sides of the family be forced to sell the home and distribute the proceeds according to the terms of the trusts, or can the heirs from one side of the family buy the home for their own use? Or can the heirs on one side of the family just use the home periodically without buying it? What if one side wants to sell, and the other side wants to keep the home in the family? This is why an umbrella trust or other legal instructions must be in place if there are two independent trusts.
A living revocable trust is a wonderful way to handle the ownership and control and distribution of a home, whether you have one revocable trust or two.
Possibly Related Posts:
- Buying Real Estate in a Family Trust
- Buying Real Estate and How to Hold Title
- Real Estate and Estate Planning and Death
- Real Estate and the Probate Process
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