Buying a home in a trust is an excellent way to safeguard it against a range of variables, such as avoiding thorny tax or debt scenarios, that could potentially cause the home to be seized. A “trust” is more of a catch-all term than a strict yes-or-no choice, however, and you’ll need to make some decisions to ensure your trust is the right fit for your needs.
Revocable versus Irrevocable
While the motivation behind a trust is often to allow a relatively seamless legal transition of a property from one owner to another, you might have specific wishes for that transfer. That’s where revocable and irrevocable trusts come in.
Think of a revocable trust as handing someone the keys and title to a car and trusting them to drive it, sell it, or pass it along to someone else as they please. A revocable trust is useful if you only want the property to make one “jump” in ownership, from you to the next party.
An irrevocable trust, on the other hand, assumes stability and continuity and is far more restrictive. Imagine for a moment that you only handed the keys over to that metaphorical car, and the title stated that only that person – the original person who received the keys – could use the car. This is closer to what an irrevocable trust delivers, and why financial professionals caution against using it in situations that are likely to change.
While houses don’t change, certain neighborhoods, financial statuses, job markets, and other variables inevitably do, so be sure to properly review these with your financial professional before creating an irrevocable trust. Individuals often use irrevocable trusts to safeguard their assets when bequeathing homes to their children; that way, if the child(ren) find themselves in a bad financial position later, they won’t lose assets that were “locked” into the home prior to their monetary woes by the revocable trust.
Expect Extra Legwork in Lending
All that safeguarding does come at a price, unfortunately, and that often manifests as lender hesitancy when lending against property in trust. You might have issues securing an initial loan, or your beneficiaries might face a steep uphill battle when refinancing the home years later. It isn’t unusual to find that a lending institution won’t work with a trust at all; there’s still a lot of misinformation and misunderstanding in the overlap between legal protections and financial implications in trusts.
It isn’t to say that it’s impossible to find lending for a trust-secured property, only that it might not be as simple as an outright purchase of a home: don’t be discouraged!
“Trust” in Professionals
That legal-financial overlap isn’t just a potential complication to watch out for, it’s a guideline for smart planning, too. If you’re considering buying a home in trust, make sure that you discuss your needs with both an estate planning professional and a financial advisor, ideally at the same time. Each will be able to contribute context that the other likely can’t, ensuring that your trust manifests exactly how you’d like it to. You don’t want your loved ones to find out that a clause was set up incorrectly when you can’t be around to correct it, after all. Trusts are incredibly useful instruments for estate planning, but they’re only as good as their personalized setup.
Buying a home in a trust keeps future issues minimized while giving you peace of mind in the here-and now. They simplify estate planning and let your loved ones know what to expect when your assets are divided, and that legacy is a smart one for homeowners to leave behind.
This information is provided courtesy of The Eastside Real Estate Team. Keep us in mind for all your real estate needs. Call us today at 425-200-4093.