Can a Living Trust Help Protect When Buying and Selling Real Estate?

Living trusts (also known as “revocable trusts” or “inter vivos”) has become a beneficial hallmark of the real estate industry, protecting its supporters from complicated probates, costly lawsuits, and much more. This trust ensures that, upon your death (“trustor”), the assets within the trust will be handled by your “trustee” and transferred to your designated “beneficiaries”.

As mentioned above, one of the primary reasons for recreating a living trust is to avoid expensive probate fees and complicated procedures. The more valuable property and assets are, the higher the probate costs become.

This article addresses placing real property into a trust, which could be added at any time. It also addresses flexibility since the trustee can sell, give away, or take the property out of the trust at any given point in time.

Issues to Consider

A sole owner of a property may include the property in a living trust. The title of the property has to be changed to reflect the ownership change. There are additional considerations to take into account when transferring property to a trust such as:

1. Depending on the state, an owner who designates himself or herself as the trustee may spark a property tax assessment. California and many other states do not require a tax assessment. The normal transfer taxes on real estate are usually not imposed when a property is transferred to a living trust. Mortgage interest is deductible from the income tax of a living trust grantor. There is no need to change insurance policy registration of covered property in a revocable trust.

2. Depending on your financial situation, a living trust may be costly to establish. Since you are required to fund the trust at the time of formation, trusts may be proven much more costly than a will. There are also costs involved in reregistering the property under the trust, which includes filing fees, etc.

Advantages of a Living Trust

There are also several advantages to the living trust:

1. A living trust maintains financial privacy and provides for a more efficient and easier administration of property.

2. The trust gives a trustee flexibility and complete control over who receives assets of the trust if death occurs. It is easy to setup and easy to cancel as well.

3. As mentioned before, living trusts protect against probates, which has proven to be not only time consuming, but also costly.

Answer to the Question

When a living trust is set up, assets are transferred from the owner's name to the name of the trust. Legally, all assets belong to the trust. The trustee can buy and sell assets as well as change or cancel a trust.

Overall, the ease of use and control over the property makes a living trust an appealing way to take title. Not only does it protect your privacy and your assets while you’re alive, it also creates a much easier transition upon your death.