Dear Penny: I Recently Bought a Home. Should I Be Putting It In a Trust or Will?
I’ve recently purchased a house; it’s only in my name and really my only asset. I have three grown children; two who live with me and pay rent and one who’s married and owns her own home. I’ve heard that putting the house in a trust is a better plan than making a will and doing a “transfer on death,” because it allows you to avoid probate as well as protects the house from counting as an asset should I require long-term care. But the idea of transferring ownership of my one and only asset to a trust makes me nervous. I have met with financial advisors and estate planners but continue to feel confused whether it would be better to do a trust or a will/TOD. What would you recommend?
— In a State of Planning
Dear In a State,
There are several types of documents you can use to control your estate and its ownership after your death. You’re correct about a major difference between a will and a trust: A will goes through probate after you die, so it becomes public record and can be more easily contested. A trust doesn’t go through that process.
Everyone should speak with an estate attorney to create the plan that’s right for you. I recommend asking your attorney about adding your home to a *revocable living trust.*
With this vehicle, you can be the trustee — the person in charge of the assets — while you’re alive and able to make decisions for yourself. You can name a successor trustee who will have control of the trust only after you die or become unable to make financial decisions.
You’ll also list beneficiaries for the trust. While you’re alive, you can be the sole beneficiary, or you can name yourself and a co-beneficiary (like a spouse or partner). You’ll name residuary beneficiaries, who inherit the assets in the trust only after you die.
If you have a mortgage on the house, you might have trouble putting it into a trust, because lenders could be reluctant to offer debt against an asset that’s technically titled by the trust, not an individual. Ask your financial planner and mortgage lender about your options.
As long as you’re the trustee, a trust’s contents are considered part of your assets if you owe any debt upon your death, like for long-term care. You’d have to transfer ownership to remove it from your balance sheet.
Dana Miranda is a Certified Educator in Personal Finance® and author of YOU DON’T NEED A BUDGET. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.
