Many seniors planning for the future may want to place their home in a trust for their children.
This is especially true if the house is paid off, and free and clear of a mortgage.
However, what would happen if the home were placed in a trust and the senior then decides to sell it?
Nj.com’s recent article entitled “Can I sell my house after I put it in a trust?” explains that there are two primary types of trusts: revocable and irrevocable.
The assets in a revocable trust avoid probate but stay in the grantor’s control. That is because you can always change the terms of the trust or terminate the trust. With a revocable trust, the terms can be altered or canceled at the direction of the grantor (also known as the trustmaker, settlor, or trustor) of the trust.
During the life of the trust, income earned is given to the grantor, and only after death does property transfer to the beneficiaries. Assets in a revocable trust are available to creditors and are subject to estate taxes upon death.
A grantor can be the trustee. In that way, the grantor continues to manage trust assets on a day-to-day basis.
In contrast, an irrevocable trust cannot be changed or altered once it is established. In fact, the trust itself becomes a legal entity that owns the assets placed in it. Because the grantor no longer personally controls those assets, there can be certain advantages and creditor protections.
Because they can’t be changed by the grantor, each irrevocable trust is designed with a highly specific purpose in mind. Put another way, no one irrevocable trust can accomplish every estate planning goal.
For example, a traditional non-grantor irrevocable trust is best used for transferring high-value assets that could cause gift or estate tax issues in the future.
But an irrevocable Medicaid Asset Protection Trust is better for the typical senior who wants to protect their home and life savings from nursing home expenses while still getting certain tax benefits that occur when a loved one inherits those assets.
The nj.com article says a revocable trust may be the best answer. But that doesn’t really give the entire picture.
In both revocable and irrevocable trusts, the terms of the trust agreement will dictate the rights of the grantor and beneficiaries. As a result, you can include language to make sure you are still able to live in the home, retain certain tax benefits when you or your trustee sell it, and dispose of it as you want upon death.
You just have to be careful to include the right terms in the trust agreement.
Trusts are very complicated, so in any situation consult with an experienced estate planning attorney about whether to use a trust and to make certain that you create the best trust for your specific situation.
Reference: nj.com (Feb. 25, 2022) “Can I sell my house after I put it in a trust?”