Benefits Of Putting Real Estate In A Trust
Many people own real estate properties. Whether it is a residential or commercial property, it is often one of the most significant assets a person can own. As such, it is crucial to protect this asset and ensure its smooth transfer to heirs or beneficiaries. One way to do this is by putting real estate in a trust.
What is a trust?
A trust is a legal entity where a trustee holds and manages assets for the benefit of the trust's beneficiaries. The trustee has a fiduciary duty to manage the trust assets according to the trust's terms and in the best interest of the beneficiaries.
Benefits of putting real estate in a trust
Putting real estate in a trust can offer several benefits:
1. Avoiding probate
Probate is a legal process that occurs after a person dies. It involves validating the deceased's will, identifying and appraising the deceased's assets, paying off any debts, and distributing the assets to the beneficiaries. Probate can take a long time and can be expensive, with legal fees and court costs reducing the value of the estate. By putting real estate in a trust, the property can bypass probate and be transferred directly to the beneficiaries.
2. Privacy
Probate is a public process, and the details of the deceased's assets and beneficiaries become part of the public record. By putting real estate in a trust, the transfer of ownership is private and confidential, with no public record of the beneficiaries or the value of the property.
3. Protection from creditors
If a person dies with outstanding debts, creditors can make claims against the deceased's assets, including real estate. By putting real estate in a trust, the property is protected from creditors, and the beneficiaries can receive the property without the risk of losing it to creditors.
4. Control over distribution
Putting real estate in a trust allows the grantor to control how and when the property is distributed to the beneficiaries. The grantor can specify certain conditions that must be met before the property is distributed, such as the beneficiaries reaching a certain age or achieving specific milestones. The grantor can also specify how the income from the property should be distributed and who should manage the property.
5. Tax benefits
Putting real estate in a trust can offer tax benefits, such as reducing estate taxes and capital gains taxes. By transferring the property to a trust, the grantor removes the property from their estate, reducing the estate's value for tax purposes. Additionally, if the property appreciates in value, the beneficiaries can avoid paying capital gains taxes when they sell the property if it was held in a trust for more than a year.
Types of trusts
There are different types of trusts that can be used to hold real estate, including:
1. Revocable living trust
A revocable living trust is a trust that can be changed or revoked by the grantor during their lifetime. The grantor retains control over the property and can change the trust's terms at any time. After the grantor's death, the trust becomes irrevocable, and the trustee manages the property for the beneficiaries.
2. Irrevocable trust
An irrevocable trust is a trust that cannot be changed or revoked by the grantor once it is created. The grantor gives up control over the property, and the trustee manages the property for the beneficiaries. An irrevocable trust can offer greater protection from creditors and estate taxes but can be less flexible than a revocable living trust.
3. Qualified personal residence trust (QPRT)
A QPRT is a type of irrevocable trust that can be used to hold a primary residence or vacation home. The grantor transfers the property to the trust and retains the right to live in the property for a specified period. After the specified period, the property is transferred to the beneficiaries, and the grantor cannot live in the property without paying rent.
Conclusion
Putting real estate in a trust can offer several benefits, including avoiding probate, protecting the property from creditors, and offering tax benefits. Different types of trusts can be used to hold real estate, depending on the grantor's needs and goals. It is essential to consult with a professional to determine the best way to protect and manage real estate assets.