We’re glad you asked. You might have heard that a living trust can…
- Have your property bypass the costly, time-consuming probate court process when you die.
- Be modified if you change your mind, and even let you put the property back in your own name while you are alive.
- Name a successor trustee with the power to pass your property to whomever you designate as the new owner.
All of the above are reasons many people use this method of passing their property along after they die. And a home is a typical piece of property that people put into a living trust.
Importantly, a living trust is a revocable trust — it’s a trust you control during your life, and can change. Curious as to how it works? Here, we outline the basics of using a living trust to pass a lifetime home along to its future owner(s).
Creating the Trust
A sole owner always has authority to create a trust for real estate. If co-owners are on the title to the house, they can do it too. All owners must sign the trust document. For example, Susan Li and Emmet Li might decide they want a Li Family Revocable Living Trust. So, rather than creating individual trusts, the two can jointly create a living trust and place the property in it together. They can keep their power to make financial decisions related to the home by making themselves joint trustees. As a named trustee, Susan, for example, has a duty to preserve the value of the home and make prudent financial decisions involving it.
The trust can be specifically written to permit Susan and Emmet to finance or refinance the property. As trustees, they must always keep up with the loan repayments due on a mortgage home.
The trust document must name a successor trustee — a person Susan and Emmet trust to make decisions for them, as directed by the family trust document, if one day they aren’t able to make sound decisions about their assets.
Transferring the Title
Once the living trust is created, the next legal step is moving the home into it. To do this with a quitclaim, you would sign the home over to the name of your trust, and name the trustee. For a jointly owned home, both/all owners must sign the deed.
Your quitclaim deed will state the home’s address and its full legal description to match what is stated on your currently recorded deed, and on your new trust document. You (your full legal name) are the grantor, transferring the property to the trust — the grantee.
You would sign the dated quitclaim deed with a notary public to formally transfer the home to the trust on the stated date. Then you would have the quitclaim deed recorded. Each county recorder of deeds has information about filing fees, any applicable transfer taxes, and any supplemental documentation you might need to submit. A quitclaim filer in California, for example, gets filed together with a tax affidavit and a Preliminary Change of Ownership Report (the “PCOR”).
The recorder’s office may keep online records of your documents. This makes it easy to see when a title is conveyed to the name of a living trust.
Making the Right Calls
Who should be called before you transfer your home into a trust?
- Calling your mortgage company is always appropriate before deeding your home. The company should understand what you’re doing, so there are no surprises. That said, the mortgage won’t suddenly become accelerated because the home was deeded to a living trust. If the homeowner is also the trustee, the transfer won’t be treated as a sale.
- Is there an owner’s title policy on the home? If so, call the title insurance company to find out if you can keep the policy intact through the transfer.
- Your homeowner’s insurance representative must be notified, too. The company will need to insure the home under the trust’s name.
Important note: Quitclaim deeds transfer property without guaranteeing that the grantor conveys the property free and clear of title defects or claims. Therefore, quitclaims are most often used among related parties. In contrast, warranty deeds represent that a clear title is being conveyed, based on a title company’s examination. We recommend checking with an attorney in your state for guidance in selecting the type of deed that fits your circumstances.
Selling or Refinancing the House
By naming yourself as trustee, you can keep your options to use and manage your home throughout your lifetime. Though the home will be legally owned by the trust, your social security number will still be the identifier for any actions taken on it. This means you can sell it and personally claim the federal tax exclusion on capital gains.
If you opt to sell and buy another house, you can still keep your trust in place by having your buyer pay the trust, not you personally. Then, have the trust purchase the new house.
What about refinancing property in a living trust? You can do it, if the trust permits. Do you hold a title insurance policy? If so, contact your title insurance company before you take action, to be sure you’re leaving your title coverage intact.
With your mortgage specialist’s guidance, your property might be taken out of the trust temporarily during the refinancing process. Mortgage and title companies are helpful in arranging such transfers, because they have an interest in closing a homeowner’s loan.
Just don’t forget to convey your home back to the trust when the refinancing is successful! Forgetting this step means leaving the house out of your trust after you die. It means the last deed recorded on your home took your house out of your trust so you could refinance your mortgage. So, be sure the house gets retitled to the trust by way of a new deed when you get your new loan. Otherwise, your trust will do nothing to keep the house out of probate later.
Should you die with a mortgage, your successor trustee will need to resolve the loan debt. Often, the beneficiary of the house will seek to refinance the loan. If the beneficiary cannot take on the debt, the trustee will sell the house, pay off the debts, and transfer remaining proceeds to the beneficiary.
Wrapping Up
What’s the point of placing a house in a revocable trust? Ownership of the home legally moves to the name of the trust. This way, property can pass after your death without the involvement of a court.
A trust is just one way of passing your property to beneficiaries. As an estate planning tool, a trust can work together with a will. A lawyer who works on wills and estates can make sure your trust is correctly formed under your state’s law, and can also help you avoid unexpected government impacts — related to potential benefits as well as taxation. To anticipate how your estate planning interacts with taxes, consult your tax expert.
Supporting References
Deeds.com: Is It Time to Place Your Home in a Living Trust? (Jan. 6, 2021).
Deeds.com: Can a Home in a Living Trust Be Refinanced? (Feb. 21, 2022).
Kimberlee Leonard for SFGate.com: Home Guides – Can a Quit Claim Deed Transfer Property to a Trust? (updated Jul. 18, 2017).
Photo credits: RODNAE Productions, via Pexels