If you are like many homeowners, your home is likely your family’s most valuable and treasured asset. In light of this, you want to plan wisely to ensure your home will pass to your heirs in the most efficient and safe manner possible when you die or in the event you become incapacitated by illness or injury.
Indeed, proper estate planning is as much a part of responsible homeownership as having homeowners insurance or keeping your home’s roof well maintained. When it comes to including your home in your estate plan, you have a variety of different planning vehicles to choose from, but for a variety of different reasons, putting your home in a trust is often the smartest choice.
In part one, we explained how revocable living trusts and irrevocable trusts work, and we discussed the process of transferring the legal title of your home into a trust to ensure it’s properly funded. Here in part two, we will outline the key advantages of using a trust to pass your home to your loved ones compared to other estate planning strategies.
The Benefits Of Putting Your Home In A Trust While both wills and trusts are the most commonly used estate planning vehicles to pass on wealth and other assets to your loved ones, putting your home in a trust has a number of distinct benefits compared to using a will.
One of the primary advantages of using a trust to pass on your home to your heirs is the avoidance of the court process known as probate. Unlike a will, assets held in trust do not have to go through probate. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, with automatic supervision to handle any disputes.
However, probate can be a long and expensive process, which can be emotionally draining for your loved ones. Depending on the complexity of your estate, probate proceedings can drag out for months or even years, and your family will likely have to hire an attorney to represent them, which can result in costly legal fees that can drain your estate. Plus, probate is open to the public, which can make things risky for those you leave behind, especially if the wrong people take an interest in your family’s affairs.
Unlike a will, if your trust is properly set up and maintained, your family won’t have to go through probate to inherit your home. Instead, your home will immediately pass to your loved ones upon your death, without the need for any court intervention. Avoiding the delay of probate can be especially critical when it comes to a home to ensure the property is properly maintained, since the home may fall into disrepair while probate is being completed.
Finally, unlike wills, trusts remain private and are not part of the public record. So, with a properly funded trust, the entire process of transferring ownership of your home can happen in the privacy of your Personal Family Lawyer’s® office, not a courtroom, and on your family’s time.
Protection Against Incapacity In addition to passing on your home to your loved ones when you die, putting your home in a trust can also protect your home in the event you become incapacitated by serious illness or injury. In contrast, a will only goes into effect upon your death, so it would be useless for protecting your home in the event you become incapacitated. If you do become incapacitated with only a will in place, your family will have to petition the court to appoint a conservator or guardian to manage your affairs related to homeownership, including paying your mortgage and property taxes, keeping up with your home’s general maintenance, and overseeing the sale of your home. Like probate, the process of petitioning the court to appoint a conservator or guardian can be costly, time-consuming, and stressful.
And there’s always the possibility that the court could appoint a family member as a guardian that you’d never want to manage your family home. Or the court might select a professional guardian, putting a total stranger in control of your family’s most precious asset and leaving it vulnerable to crooked guardians, who could potentially sell your home for their personal financial gain.
With a trust, however, you can include provisions in the terms of the trust that appoint someone of your choosing—not the court’s—as successor trustee to manage your home’s ownership and/or sale if you’re unable to do so yourself due to incapacity. For example, your trust could authorize your successor trustee to sell your home in order to pay for the costs of long-term care should you require it. Control Over Asset Distribution Because you can include specific instructions in a trust’s terms for how and when the assets held by the trust are distributed to a beneficiary, a trust can offer greater control over how your assets are distributed compared to a will. For example, you could stipulate in the trust’s terms that the assets can only be distributed upon certain life events, such as the completion of college or marriage, or when the beneficiary reaches a certain age.
In this way, you can help prevent your beneficiaries from blowing through their inheritance all at once, and offer incentives for them to demonstrate responsible behavior. And as we mentioned earlier, as long as the assets are held in trust, they’re protected from the beneficiaries’ creditors, lawsuits, and divorce, which is something else wills don’t provide.
Avoiding Family Conflict If you leave your home to your loved ones using a will and you designate more than one person to inherit the property, there’s a potential for conflict because each individual gets an undivided interest in the home. Given this, these individuals must agree on what to do with the home—keep it or sell it—and they may not see eye-to-eye, which can create unnecessary drama that can tear your family apart. For example, if one of your children wants to keep the home and live in it, but the other prefers to sell it in order to pay off their debts, the child who wants to sell could go to court in order to force their sibling to sell the property. However, this potential for conflict can be avoided by putting your home in a living trust. If you name more than one beneficiary for your home in your living trust, you can name a neutral third-party as successor trustee to decide what happens to the home, and then manage the distribution after a clear determination is made. For example, the trustee could allow one child to live in the home, while the other could receive other estate assets of equal value, or the trustee could come up with some alternative solution to stave off the potential for conflict.
“Transfer On Death” Deed In Georgia, there are limited options outside of trusts to pass title to real estate upon death without probate. One commonly used method between spouses is to own properties as Joint Tenants with Rights of Survivorship. It is important to note, however, that not all real estate attorneys prepare joint tenancy deeds by default for couples, and thus it is important that you review your deed to see how it is titled. A “JTROS” or “survivorship” deed is a good tool to automatically transfer title from one spouse to the other upon death in order to avoid probate being necessary to transfer the marital home. The problem is that the surviving spouse then has to take affirmative action concerning what will happen upon his or her death. Also, some people use “life estate” deeds to transfer property to their children and reserve a “life estate.” What many people don’t realize is that a life estate deed cannot be revoked in the absence of the other title holders deeding their interests back to the life estate estate holder. The life estate holder can live in the home and make use of it, but they cannot use it for security in a loan or change who will own it after their death, unless every title holder consents. In other words, you should not use this method of estate planning unless you discussed it with an attorney you trust and feel comfortable with the consequences. Joint tenancies and life estate transfers come with some other major drawbacks, and they may end up creating unintended problems for your loved ones. To this end, before you rely on one of these methods as a cheaper alternative to passing your house via a trust, consider the following factors:
- If your property is held in joint tenancy with rights of survivorship, your joint tenant becomes the sole owner upon your death and has full control of the property. If you have children or relatives that you intended to benefit from the home one day, it would be within your surviving spouse’s complete discretion to alter the future beneficiary.
- Unlike with a living trust, a survivorship deed cannot be used to manage, sell, or borrow against the property during your incapacity. This means that if you become incapacitated, the beneficiary of your survivorship deed would be unable to access your home in order to sell or refinance the property to pay for your care, as your trustee could if you had the property in a living trust.
- If the beneficiary of the survivorship deed is a minor upon your death, a court-appointed guardian will need to be named to control your property until the child reaches legal age. With a living trust, however, the person you named as successor trustee can manage the property until your child reaches legal age.
- Using a survivorship deed in order to transfer ownership of your home to try and lower the value of your assets doesn’t count as a Medicaid spend-down, so it will not help you qualify for the program. Depending on the facts, the property may even be subject to the Medicaid Estate Recovery Program (MERP) after you die. As mentioned earlier, if you want to qualify for Medicaid and protect your home from MERP, meet with your Personal Family Lawyer® to discuss creating an irrevocable trust. Medicaid asset protection is not our focus at Bryant & O’Connor Law Firm, but it is an important consideration for a number of our clients, and we are educated on the subject. For families that want to shield a a significant number of resources from Medicaid, we sometimes refer them to a specific attorney who has focused on this area. Protecting your own assets from creditors in Georgia requires giving up a lot of control, and Georgia is a fairly creditor-friendly state, meaning that asset protection measures often don’t work. Legal guidance is absolutely necessary.
Given these potential complications, using a life estate deed or survivorship deed to transfer ownership of your home as an alternative to a living trust may not be a good idea. Trying to save money now could cost you or your loved ones big time down the road. Instead, we can help you find better ways to transfer ownership of your home that will keep your family out of court and out of conflict.
Find The Solution That’s Right For Your Family Although putting your home in a living trust can be an ideal way to pass your home to your loved ones, each family’s circumstances are different. This is why your Personal Family Lawyer® will not create any documents until we know what you actually need, and what will be the most affordable solution for you and your family—both now and in the future—based on your family dynamics, assets, and desires.
The best way for you to determine whether or not your estate plan should include a will, a trust, or some combination of the two is to meet with your Personal Family Lawyer® for a Family Wealth Planning Session, which is the first step in our Life & Legacy Planning Process. During this process, we’ll take you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you die or if you become incapacitated.
Sitting down with a Personal Family Lawyer® will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. In fact, we see estate planning as so much more than planning for death, which is why we call it Life & Legacy Planning—it’s about your life and the legacy you are creating by the choices you make today. Contact us today to learn more.
This article is a service of Daniel O’Connor, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge
Real Estate Estate Planning