Homes and property in revokable trusts?

Wendy’s question about her home in her revokable trust made me think about this. I have noticed on our county’s GIS that several of our neighbors properties are held in these.

Why?

What are the advantages of this over straight ownership?

What are the disadvantages of doing this?

Thanks

Pros:
Simplify estate planning. Can pass the house to heirs without going through probate. In case of your disability, the successor trustee of your trust can deal with your house without having to go to a court to get you declared incompetent.

Cons:
Sometimes have to remind lenders that there is a federal law allowing you to put your home into an estate planning trust without triggering the due on sale clause of your mortgage.

Probably more, but those are the ones that immediately come to mind.

–Peter

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There are two major advantages to a trust:
1.) Allows the successor trustee to take over managing your assets for you in case of disability
2.) Avoids the cost of probate. This varies by state.

Beyond simplifying estate planning, it can make "settling the estate much quicker. Every state I have lived in has different probate laws. It can easily take over a year before a house can be sold in Tennessee after the owner’s death. Actions/choices have consequences. In Tennessee, if an unpaid debt comes up say 6 months post death and after the estate has been liquidated & distributed, the Trustees likely will have to pay the debt - out of their own pockets since they can’t use funds from selling the house.

There are two major advantages to a trust:
1.) Allows the successor trustee to take over managing your assets for you in case of disability
2.) Avoids the cost of probate. This varies by state.

There’s a 3rd advantage - keeps your affairs private. Wills are subject to probate and must be filed with the court making the will and all the assets public information. The terms of a trust, on the other hand, are private. It is also much harder to contest a trust than to contest a will.

We have had a trust since 1994 when the kids were 3 years old, and the driving force for us was to keep our affairs private, and particularly so that it would be difficult, if not impossible, for DH’s sisters to contest anything is we died while the kids were minors. We have all the assets that can be included in a trust included in ours, so that means bank accounts, brokerage accounts, and the house. About the only things not in the trust would be the IRA’s, cars, and miscellaneous personal property.

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Every state I have lived in has different probate laws.

All of the answers in this thread have been good, but this point by GWPotter cannot be stressed enough. Death laws are local. There is no “one size, fits all” approach.

Anyone considering estate planning, and everyone should plan, must consult with qualified legal counsel to make sure that your wishes will be carried out when you are gone. If you make a mistake, you can’t correct it after you die. I have seen too many cases of DIY and/or lack of estate planning that went horribly wrong.

Ira

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In Tennessee, if an unpaid debt comes up say 6 months post death and after the estate has been liquidated & distributed, the Trustees likely will have to pay the debt - out of their own pockets since they can’t use funds from selling the house.

Our lawyer recommended keeping 1/3 of the estate for three years in case of unexpected bills especially for unexpected income tax issues.

In California, spouses and children retain Prop 13 tax basis. Most other heirs do not. The unsecured property tax bills are generated when the county gets around to it and a separate statement is issued for each 6 month tax period. For the estate I was administrator, those bills were received almost a year later.

The distributions from the trust that my husband was co-trustee required signing a document that specified if unexpected valid claims occurred, the heirs would pay their portion of the claim. This is dicey in many cases but the trust was for my mother-in-law. We had handled filing her income taxes for many years. She had resigned from being trustee several years before her death because of dementia. Along with filing her income taxes, my husband had handled her finances for years.

Probate does prevent other unexpected issues provided proper notifications have been done, claims must be submitted to the court and the executor within the time specified by state law.

It is also not unusual that there is a trust for the major assets and probate for miscellaneous assets.

It can easily take over a year before a house can be sold in Tennessee after the owner’s death.

An issue with probate is the time required for the court to assign the administrator/executor for an estate. Locally it takes several months for that to occur. The probate court doesn’t consider paying bills an emergency. During the initial part of the pandemic, probate court was closed for several months.
When a friend passed away, he was using an electronic lock for his house. No one else had the code. It took his family several months to gain access to his home. Fortunately, he didn’t have any pets.

Probate court can be petitioned to allow the administrator/executor to sell the property before probate is closed. The proceeds need to be placed in an estate account. My cousins did this when they were handling their mother’s property. Will had been filed with the court. Both appeared in court stating it was their wishes. Since they were in agreement, the court allowed immediate sale of the property.

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An issue with probate is the time required for the court to assign the administrator/executor for an estate. Locally it takes several months for that to occur.

Here in NJ, the executor can be appointed as soon as 10 days after death. As I stated earlier, death laws are local. You must know the laws that will apply to you in order to make good plans.

Probate court can be petitioned to allow the administrator/executor to sell the property before probate is closed.

That doesn’t seem correct. Once probate is opened, the executors are free to liquidate any assets in the probate estate (unless perhaps there is some special restriction imposed by the will). Probate isn’t closed until all debts of the estate are paid and all assets are distributed to the beneficiaries to the satisfaction of the probate court.

Ira

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That doesn’t seem correct. Once probate is opened, the executors are free to liquidate any assets in the probate estate (unless perhaps there is some special restriction imposed by the will).

It is what happened. I don’t have any further details and won’t ask the surviving cousin for details. It is unlikely that the will placed any specific restrictions. Neither of my cousins were living local to their mother. It wasn’t plausible that either would return and take over the farm.

A common situation is when you have children from a previous marriage. Trust often becomes irrevocable on the death of the first partner and cares for surviving partner but preserves assets for children of the previous marriage.

AB by-pass trust can also be used to double the federal estate tax exemption. Now that the number is up to $12MM, not a concern for many. But way back the number was $600K. And there is discussion of reducing the current exemption or notes that it expires and returns to a lower number in a few years.

irasmilo:

{{{Every state I have lived in has different probate laws.}}}

"All of the answers in this thread have been good, but this point by GWPotter cannot be stressed enough. Death laws are local. There is no “one size, fits all” approach.

Anyone considering estate planning, and everyone should plan, must consult with qualified legal counsel to make sure that your wishes will be carried out when you are gone. If you make a mistake, you can’t correct it after you die. I have seen too many cases of DIY and/or lack of estate planning that went horribly wrong."

I would also add that if one owns a second or vacation home in a state different than the state that is there state of residence, ancillary probate will also likely be required in the second state and its laws and rules will apply.

Thus, the benefit of having a home in trust with respect to probate is likely even bigger if there is a home in a second state.

Regards, JAFO

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I would also add that if one owns a second or vacation home in a state different than the state that is there state of residence, ancillary probate will also likely be required in the second state and its laws and rules will apply.

Excellent point. Not only second homes, but businesses, rental properties, etc.

Ira

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irasmilo:

{{{I would also add that if one owns a second or vacation home in a state different than the state that is there state of residence, ancillary probate will also likely be required in the second state and its laws and rules will apply.}}}

“Excellent point.”

Thank you.

“Not only second homes, but businesses, rental properties, etc.”

So true. I generally do not think of those items being in a revocable trust, so I did not mention them. But many people own a vacation home or a second home to snowbird (or reverse snowbird) so that was my focus.

Plenty of Pennsylvanians own beach houses down the (jersey) shore.

Plenty of new Yorkers own weekend places in the Pocono Mountains or Connecticut or winter escapes in Florida.

Plenty of Texas own homes in Colorado to escape the summer heat and/or to ski in the winter.

Plenty of Californians that own vacation homes in Hawaii.

Regards, JAFO

The reason I put my house in my revocable trust was to allow my husband to live in the home for his lifetime but to pass it to my sister on his death even if he remarried.

Plus the other benefits mentioned by others.
Wendy

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The reason I put my house in my revocable trust was to allow my husband to live in the home for his lifetime but to pass it to my sister on his death even if he remarried.

Considering lots of moving parts - will the trust pay the taxes and insurance for the property while he lives there ?

Certainly with our Trust and I believe generally, Trustees must authorize payments from Trusts. For us we found it was possible got authorize the Financial Institution to perform duties such as paying credit cards and I presume taxes - but it was far from cheap. There are also certain activities these institutions refused to consider and sort of a prerequisite was managing the financial assets of the Trust.

But as my favorite boss liked to say, if we can put a man on the moon, given enough time and money, we can do anything that does not violate the laws of physics.

I would also add that if one owns a second or vacation home in a state different than the state that is there state of residence, ancillary probate will also likely be required in the second state and its laws and rules will apply.

Also, with property or any assets in different states, a separate trust maybe required for each state.

There’s a 3rd advantage - keeps your affairs private.

If you have elderly relatives that will be an administrator/executor, don’t allow them to include their phone number in the probate filing especially if there is any real estate in the estate.

Vultures kept calling telling me that probate is “so difficult” and they would “help.” Some tried to buy the house. The only call that was not from my lawyer was the court appointed appraiser.

In retrospect, I should have obtained a burner phone.

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AB by-pass trust can also be used to double the federal estate tax exemption. Now that the number is up to $12MM, not a concern for many. But way back the number was $600K. And there is discussion of reducing the current exemption or notes that it expires and returns to a lower number in a few years.

A trust can allow for an A/B/C by-pass trust but should NOT require it.

Portability of estate exemption allows a surviving spouse the ability to transfer the deceased spouse’s unused exemption amount (DSUEA) for estate and gifts taxes to a surviving spouse. It does require timely filing of federal estate tax return.

A by-pass trust requires long term administration. The assets in the by-pass trust don’t receive a new basis when the second spouse passes away.

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