Proper Estate Planning is necessary to ensure your assets are handled according to your wishes after you’re gone, and that your family is taken care of in the manner you desire. One common and effective method is setting up a trust. But what exactly is a trust? How does it work, and why is it important?
A trust is a legal agreement in which the maker of the Trust (the “Grantor”) selects a person (the “Trustee” to hold and manage assets for the benefit of a third person (the “Beneficiary”). Virtually any type of asset can be placed into a Trust to be managed for the beneficiary, including real estate, such as a house or a residence. Establishing a trust for your house can provide a clear and legally binding roadmap for distribution or management after your death.
Why You Need a Trust for Your House
Holding real estate, in particular your residence, in a trust offers many benefits.
First, placing a house into a revocable living trust can avoid probate, a lengthy and often costly court process that would otherwise control the distribution of your assets after death. Secondly, a trust provides greater privacy since its details aren’t public records. Third, a Trust can allow you to carry out very specific instructions and administer your estate in ways that might be difficult inside of a probate estate, at a fraction of the cost. Lastly, certain trusts may be able to safeguard your assets from certain liabilities and creditors.
Compared to a Will, which generally goes through probate, a trust offers more control, especially when dealing with issues related to real estate.
While there are many types of Trusts, there are two main types of trusts that are most often considered for general estate planning purposes, especially when involving real estate. Understanding the differences between them can help you make an informed decision.
Also known as a “Living Trust”, or “Revocable Living Trust”, a Revocable Trust allows the trust creator (“Grantor”) to have complete control over the assets in the trust during their own lifetime. The Grantor can alter the trust terms, add or withdraw assets, or even revoke the trust entirely. The trust becomes irrevocable after the Grantor’s incapacity or death, and thereafter the property is transferred to the beneficiaries as stipulated in the trust agreement. This type of trust is popular as it provides flexibility, avoids probate, and maintains privacy.
As the name suggests, an irrevocable trust cannot be altered or revoked by the Grantor once the trust is established. This means the Grantor must be very careful and intentional to create a very well thought out trust, because it cannot be changed at a later time. The assets, including any real estate moved into the trust, are no longer considered part of the Grantor’s estate, but now belong to the trust itself. Placing property, including real estate, into an irrevocable trust can provide asset protection from creditors. However, it also means that the Grantor gives up full and unfettered control over these assets.
Choosing the right trust for your estate planning needs depends on several factors, including:
- Control: If retaining control over the property is crucial, a revocable trust may be more suitable. Conversely, an irrevocable trust might be a better option if you’re comfortable giving up control in exchange for asset protection.
- Tax considerations: An irrevocable trust could provide tax advantages if your estate is large enough to be subject to estate taxes.
- Privacy needs: Both types of trusts provide privacy, but a revocable trust might offer more control over private information since you can change or even dissolve the trust if needed.
Remember, choosing the right trust is a crucial decision and should be made with advice from an experienced estate planning attorney.
What Happens to Trust Property Contained in a Trust After the Grantor Dies?
When the Grantor (creator) of a Trust passes away, various processes are usually initiated depending on the type of trust set up.
Below is a step-by-step breakdown of what typically happens for both Revocable and Irrevocable trusts, upon the death of a Grantor.
- Trust becomes irrevocable: A revocable trust automatically becomes irrevocable upon the Grantor’s death. This means it can no longer be changed or altered.
- Notification of interested parties: The successor trustee, a person or entity named by the grantor, notifies all beneficiaries of the Grantor’s death. The beneficiaries are also generally notified of some of their rights, including the right to receive a copy of the Trust Agreement, and publication occurs giving creditors a limited time to file claims.
- Inventory, Appraisal, Assessment: The successor trustee assesses the trust’s property, including any real estate owned by the Trust. This may involve appraisal for value determination and may require professional assistance.
- Settling debts and taxes: Before any distribution, the trustee may often use the estate’s assets to pay off any debts and taxes the grantor owes.
- Final Settlement and Distribution of Assets: The beneficiaries are provided a final accounting for the trust, and the trustee then divides and/or distributes trust assets, including any real estate, according to the terms of the trust.
- Notification of interested parties: The Trustee notifies all beneficiaries of the Grantor’s death. The beneficiaries are also generally notified of some of their rights, including the right to receive a copy of the Trust Agreement, and publication is often made giving creditors a limited time to file claims.
- Inventory, Appraisal, Assessment: Similar to a revocable trust, the successor trustee assesses the trust’s property, including any real estate owned by the Trust. This may involve appraisal for value determination and may require professional assistance.
- Management of the trust: Since an irrevocable trust is meant to exist independently of the grantor, the trust continues to operate under the trustee’s management. The property, including any real estate, may remain in the trust until the conditions required for distribution, as stated in the trust agreement, are met.
- Distribution of assets: This occurs according to the specifications of the trust agreement, which might be at a particular time or event, or it may involve maintaining the property in the trust for ongoing beneficiary use.
In both scenarios, the trustee manages the processes after the Grantor’s death. The specifics of each process can vary depending on the unique terms set in the trust agreement.. As such, seeking legal guidance is recommended in order to navigate these procedures in the most effective way possible.
Role of the Successor Trustee
The successor trustee plays a vital role after the trust owner’s death. This individual or entity manages the trust assets, including any real estate, and distributes assets according to the trust terms. Their duties include notifying beneficiaries, settling the deceased’s debts, and maintaining any property contained in the trust until it’s transferred or sold.
Distribution of a House Contained In a Trust After Death
How the house is distributed or sold largely depends on the specific rules of the trust. For instance, the trust might specify that the house be sold, with the proceeds divided among the beneficiaries. Alternatively, the trust could dictate that a specific beneficiary inherits the house.
The Legal Process in Missouri
Missouri has specific legal requirements concerning houses in trusts after death. All trusts must have a trustee, or successor trustee. The trust property, including any real estate or home, must be handled and distributed according to the trust’s terms and Missouri state law. It’s not uncommon for issues to arise during the process, such as disputes between beneficiaries. In such cases, legal advice can provide effective solutions.
Navigating Trusts and House Property
Placing your home into a Trust provides many benefits and ensures your wishes are fulfilled after your death. While the process can be pretty simple, understanding the basics of how trusts work and the roles of those involved can help you make informed decisions.
If you need assistance with trusts and estate planning, don’t hesitate to contact The Piatchek Law Firm, LLC. Their team of expert estate planning and trust lawyers can guide you through the estate planning process, ensuring your property and peace of mind are well-protected.