Folks, we totally get it! It’s not pleasant to think about, but you should make arrangements for what will happen to your home when you pass away. Probate is necessary to make sure your assets are divided as you wish (or as required by state law if you didn’t leave a will), but it can take a long time and cost a lot of money.
The amazing thing is that trusts can be established for all kinds of different properties. If you’re like most people, your home is your single most significant asset. Having a plan in place for your property and the people who now live there and stand to inherit it can ease the burden on your loved ones after your death.
Have we tickled your fancy? If so, then continue reading this article to discover more about what it means to have a real estate trust.
In Simple Terms, What Is a Property Trust?
It is pretty much a legal arrangement by which one person (the grantor) transfers ownership of the property to another (the beneficiary). For the benefit of the beneficiary, a trustee is appointed to manage the trust’s assets in accordance with the terms set forth by the grantor. Are you with us so far? Great!
How Does the Process Work?
Don’t worry because we’ve got you covered! What you should know is that in most cases, you will act as your own trustee when you establish a trust to hold an asset like a home. A successor trustee will take over for you after you pass away.
At that time, the trustee you’ve appointed will be tasked with carrying out the trust’s terms and delivering the trust’s assets to the named beneficiaries.
You can rest easy knowing that upon your death (or under the terms of your trust arrangement), your home will be transferred to the person of your choosing. Your beneficiary can potentially benefit from this method by avoiding a lengthy court battle. You can click here if you’re curious to know more about your options.
What if There’s a Will Involved?
“I’m confused. Should I create a trust if I already have a will?”
Well, folks, we’re here to tell you that ultimately, it comes down to what you and your loved ones need. Creating a trust is typically more expensive than writing a will, but it is generally a speedier and more effective way to distribute your assets to your heirs.
Oh, and homeowners who know what they’re doing often use trusts and wills as part of their comprehensive estate plans. Awesome!
It’s common practice to leave only the most important assets (like a home) to a trust and leave the rest to be distributed according to your will. While the remainder of your estate goes through the standard probate procedure, your most valuable possessions can be transferred quickly thanks to this.
Risks and Considerations in Real Estate Trusts
Real estate trusts can be an attractive investment option, offering potential benefits such as steady income, diversification, and professional management. However, like any investment, there are inherent risks and considerations that investors should be aware of before entering into a real estate trust.
Market Volatility: Real estate markets are susceptible to fluctuations in demand, interest rates, and economic conditions. These factors directly impact property values and rental income, consequently influencing the trust’s performance.
Liquidity Risk: Real estate is generally less liquid compared to stocks or bonds. Selling a property within a trust may take time, especially during market downturns when real estate investments become even less liquid.
Property-Specific Risks: Each property held within a real estate trust comes with its own set of unique risks. These risks encompass location-specific factors like local market conditions, zoning regulations, environmental concerns, and tenant turnover. Conducting thorough due diligence is crucial for effectively assessing and managing these risks.
Interest Rate Risk: Real estate trusts often employ debt financing, making them vulnerable to changes in interest rates. Fluctuating rates can impact borrowing costs and property valuations. Rising interest rates raise the cost of financing, potentially reducing the trust’s profitability.
Management and Operational Risks: Effective management is vital for real estate trusts to oversee property acquisitions, operations, leasing, maintenance, and financial reporting. Inadequate management or operational inefficiencies can have negative consequences on the trust’s performance.
Regulatory and Legal Compliance: Real estate trusts must adhere to various regulatory and legal requirements, including tax regulations, securities laws, and property-related regulations. Failure to comply can lead to penalties, litigation, or damage to the trust’s reputation.
How to Put My House in a Trust?
In order to put your beloved home in a trust, you will first have to create one for yourself. Piece of cake, right?
So, folks, to establish a trust, you will need to select a successor trustee who will take over the management of the trust after your death. You will also be required to provide the names of the beneficiaries.
You are free to choose whomever you want to serve as your successor trustee; however, you should make sure that they’re someone you can rely on. If you have a fairly involved estate, you might appoint an attorney, a trust business, or another type of professional as your successor.
After that, you will work on drafting the trust agreement, which is a document that lays out the particulars of the trust. You can search the internet for common trust agreements, or you can see an attorney about having the documentation drafted for you. It is required that you sign the trust document in the presence of a public notary if you want it to be recognized legally.
And lastly folks, putting your home into a trust requires filling out a new deed. Don’t sweat it because the paperwork will be over before you know it.
Deed forms for real estate can be found online in most cases, or, awesomely enough, you can have an attorney handle the paperwork for you. You’ll need to have this signed in the presence of a notary public before you can file it with your local county recorder or clerk.