| Estate planners often recommend holding real estate in a living trust as an alternative to granting the property to an heir through a will. Correctly establishing a living trust is complicated, and an attorney should be consulted to ensure the trust is properly created. Additionally, title companies have particular requirements to facilitate real estate transactions when living trusts are involved.
Following are answers to some commonly asked questions about living trusts. For answers to questions that are not covered below, an attorney is the best source for additional information.
Who are the parties to a trust?
A typical trust is the family trust, in which the husband and wife are the trustees and, along with their children, the beneficiaries. Those who establish the trust and transfer their property into it are known as trustors, or settlors. The settlors usually appoint themselves as trustees, and they are the primary beneficiaries during their lifetime. After their death, the children or grandchildren usually become the primary beneficiaries if the trust is to survive; or the beneficiaries receive distributions directly from the trust if it is to be closed out.
What is a living trust?
Sometimes called an inter-vivos trust, the living trust is created during the lifetime of the settlors (as opposed to being created by their wills after death) and usually terminates after they die and the body of the trust is distributed to their beneficiaries.
Can a trust hold title to real property?
No; the trustee holds the property on behalf of the trust.
Is a trust the best way to hold my property?
Only a qualified attorney and accountant can answer this question; some common reasons for holding property in a trust are to minimize or postpone estate taxes, to avoid a time-consuming probate, or to shield property from attack by certain unsecured creditors.
What taxes can I avoid by putting my property in trust?
Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them dies. It is important to check with a qualified attorney or accountant before taking any action.
Can I homestead property which is held in a trust?
Yes, if the property otherwise qualifies.
Can a trustee borrow money against real estate held in the trust?
A trustee can take any action permitted by the terms of the trust, and the typical trust agreement does give the trustee authority to borrow money and to encumber real property. However, not all lenders will lend on a property held in trust, so it's important to check with a few lenders first.
Can someone else hold title for me "in trust?"
Some people who do not wish their names to show as titleholders make private arrangements with a third-party trustee; however, such an arrangement may be illegal, and is always inadvisable because the trustee of record is the only one who is empowered to convey, or borrow against, the property. Moreover, a title insurer cannot protect a trustor from a trustee who is not acting in accordance with the wishes of the trustor, despite the existence of a private agreement between the parties. |
