Not many people think of what happens to their assets after they’re gone. Life is unpredictable, and it is always best to plan for the unexpected. As a property owner, maintaining your property requires time and resources, it is an asset, whether it is rented or not. An asset so valuable needs a plan for the unpredictable future to ensure the safety and protection of your property. That is where a trust comes in, putting your property in a trust can be beneficial for many reasons. This week’s blog will be covering why you should consider a trust for your property, the typical steps for opening a trust, as well as key considerations when a trust is opened.
Why Open a Trust?
Opening a trust is something that is possible for anyone, no matter your net worth. It is when an individual (the grantor) gives over their rights of ownership to a legal entity, which is the trust. The trust is managed by the trustee (usually the grantor during their lifetime), for the benefit of another party, who is the beneficiary and can typically be the grantor or their family members. The “benefit” can be defined as the rental income obtained from the property. A trust also creates a safeguard against creditors, meaning that it prevents a creditor from seizing the property after your death.
Having a trust creates guidelines as to how the trust should be handled during the trustee’s lifetime, as well as after they have passed or become incapacitated. Putting your property in a trust allows for easier transfers of real estate, shifting legal ownership from yourself to the trust. After your passing, the trust will be transferred to the trustee successor outlined in the trust guidelines, which can be one or multiple persons. Putting your property in a trust does not mean you relinquish control, unless outlined in the trust’s guidelines. A trust provides financial protection as well as an air of certainty for the future.
Putting your property in a trust allows you to avoid probate, the lengthy legal process of where your assets go after your passing. Allowing for a smoother transition to your trustee successor and beneficiaries. You can also control how and when the beneficiaries receive the property, you can list that a beneficiary must be a certain age or comply to certain conditions to inherit the property. If your specific condition allows it, you may be able to gain potential tax benefits when your property is in a trust. There are different types of trusts, and some can help reduce estate taxes. Allowing for more assets to go towards the beneficiaries.
Typical Steps for Opening a Trust
Three core trust types include a revocable living trust, irrevocable trust, and a testamentary trust. A revocable living trust is created during the grantor’s lifetime; it can be altered or revoked at any time to manage assets or avoid probate. An irrevocable trust means that once it is established, it cannot be easily changed or revoked. A testamentary trust is created within a will and can only take effect after the grantor’s death. There are also different types of trusts for specific assets and cases.
When opening a trust, the first step is to seek legal advice, discuss your situation and decide on the best trust type for you and your asset(s). Next you would have to appoint your trustee(s) and beneficiaries. Once you have your trust type, trustees, and beneficiaries, you must draft the trust document by working with an attorney. Once finalized, sign and notarize the document in compliance with local laws. Next the property must be transferred to the trust officially with a new deed by filing the deed with the county recorder’s office. Lastly, you would have to inform the beneficiaries, trustee successor, and property insurance policies to report the change that reflects the trust as the owner.
Key Considerations
Remember, this is just a general informational blog on the benefits and processes of real estate trusts, please seek legal advice if planning on opening a trust for yourself. If you are considering opening a trust, review the implications of this action. Consult a tax professional for any tax inquiries; it is important to know how the estate taxes will shift when put into a trust. Refinancing your real estate after transferring it into a trust can be a long and complicated process, take this into consideration. It is also important to note the additional costs of putting your property in a trust, you will be looking at legal fees when first transferred, and costs may rack up for any legal formalities or updated terms over the years.
When your property is put into a trust, our role as the property management company does not change. We, as the company, receive a copy of the certificate of trust confirming that the trustee has the right to sign management agreements, we are not added to the trust in any way. If something happens to the trustee, like death or incapacitation, then the property manager will report to the trustee successor. Our role simply takes over as an agent for the trustee, the trustee still holds the authority of the trust but delegates the daily maintenance, rent collection, and leasing duties to the property manager.
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