Are you looking to buy your dream home? One of the popular options you can consider is acquiring it in trust. Purchasing a property using this method means the trust is legally recognized as the owner rather than you. Still, as a trustee, you will have control of the purchased house and dictate what happens when you pass away.
Keep reading this article to learn more about buying property in trust.
What It Means to Own Property in Trust
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As mentioned, acquiring property in trust makes you a trustee rather than the owner. As a trustee, you will act as the administrator of the property in question. Note that your level of power over the acquired property depends on the type of selected trust.
Furthermore, you must pick someone to become a trustee after you pass on. The name of your successor is documented in a living trust.
One of the main benefits of buying property in trust is that your dependents won’t have to go through the complex court process called probate, which assesses your will before approving the distribution of your assets to next of kin.
Two types of trusts exist. They include revocable trust and irrevocable trust. Let’s dive deeper into each.
Revocable Trust
When you purchase a home in a revocable trust, you gain complete control over it. That means you can change the terms of the agreement whenever you want. For instance, if you list your son as your successor but no longer want the property, you can easily replace him with someone else. Moreover, you are allowed to appoint as many trustees as you wish.
It is important to mention that revocable trusts don’t have liability protection or inheritance tax benefits like irrevocable trusts.
Irrevocable Trust
Unlike revocable trusts, irrevocable trusts do not allow trustees to make modifications without the approval of successors.
These trusts are ideal for those who want to shield their properties from potential future financial liability. That means if your successor defaults on a loan after you die, an irrevocable trust will block creditors from taking possession of your property.
How to Purchase Property in Trust: A Step-by-Step Guide
Here are the steps you need to take when you want to acquire a home in trust.
1. Determine Your Desired Level of Control
As mentioned earlier, the degree of control you exercise over your property depends on the chosen trust. If you want to sell or change the names of your successors with ease, then revocable trust should be your top option. On the other hand, if you want to enjoy inheritance tax benefits, then opt for irrevocable trust.
2. Find Professionals
Real estate transactions can be complex. For this reason, finding a qualified estate planning lawyer and a financial advisor is recommended. Furthermore, it is advisable to encourage the two professionals to work together, not separately. That’s because a financial advisor may give advice that does not make legal sense, thus requiring legal interpretation from the estate planning lawyer.
3. Factor in the Costs
There are several costs involved when buying property in trust. For example, hiring an attorney familiar with estate laws to help you establish a trust might cost you roughly $3,000. Also, as a trustee, you can decide to delegate your administrator roles to a professional. As such, you will be required to pay property maintenance charges.
Can I Put Property With a Mortgage in Trust?
Properties bought with a loan can be put in a trust. One thing to note is that you must inform the financial institution that granted you the loan about your trust plans.
Disadvantages of Purchasing Property in Trust
While there are several benefits of acquiring a house in trust, this option also comes with some cons. For example, a trust makes it difficult to refinance your home loan. Moreover, establishing a trust can be a time-consuming and expensive process.