Titling Your Residence in the Name of Your Revocable Trust
Article by Lindsay Cummings
Too often people rush to the conclusion that their residence should be placed in the name of their Revocable Trust without discussing the effects of such a transfer with their estate planning attorney. There are usually more advantages to having your residence in trust, but there are certain circumstances that you should understand before making a final titling decision.
Before considering whether your residence should be in the name of your Revocable Trust, it is important to understand what a Revocable Trust is and how it could benefit your family in future planning. A Revocable Trust is an amendable document that holds title to your assets and explains what will occur with those assets upon your death or, if married, your surviving spouse’s death. Most families choose a Revocable Trust estate plan versus a Will option in order to avoid probate, dictate when and how their children receive assets, and keep their family affairs private. A Revocable Trust is not only for the wealthy, it is commonly used as a planning tool for most estates.
Once you understand the purpose of a Revocable Trust, you should consider the benefits of holding your residence in the name of your Revocable Trust.
- Avoid Probate: The most important reason to fund your Trust with your residence is to avoid probate with that asset. If the Trust holds the residence, then that asset (which is typically one of the largest assets) will avoid the costs and delays of the probate process. The Trustee can act quickly in order to deliver the inheritance to the named beneficiaries of the Trust.
- Property Taxes: When an individual or couple transfers his and/or her residence into Trust it does not uncap the residence’s property taxes. The property taxes remain the same as if you owned it personally, and you can still claim your homestead exemption.
- Incapacitation: If your Trust holds title to your residence and you become incompetent or unable to manage your affairs, the appointed successor trustee can manage your Trust and protect and maintain your residence according to the Trust terms.
Although these are all compelling reasons to transfer your residence into the name of your Living Trust, it is important to consider the circumstances below where it may not be ideal.
- Lose Protection of Joint Tenancy: If you are married and own real estate, such as your primary residence, as tenants by the entirety ownership interest is protected from any of your spouse’s creditors or your own creditors. For example, if a husband and wife own their home as joint tenants by the entirety and the wife has a creditor from a debt that only has her name on it, then the residence is protected because the husband also owns the residence so the creditor cannot attach a claim to the asset. This is not the case if the husband and wife own their residence in the name of their Living Trust.
- Medicaid: A residence and any attached surrounding acreage is considered a countable asset if it’s owned by a Trust. Otherwise, it is an exempt asset. Exempt means you may own a residence and surrounding property and still receive Medicaid.[i] If you are married, and have combined assets of less than $200,000, then it may be beneficial to convey your residence property to a Trust to protect more assets for the benefit of the spouse who is not in the nursing home. After death, the State of Michigan has the ability to recover assets to pay itself back for Medicaid benefits it paid during your lifetime. This is called “estate recovery”. However, Michigan’s estate recovery law currently only applies to probate assets. It is important to discuss proper planning with the residence property to avoid probate in the event Medicaid is a concern for long term care planning. Contact an estate planning or elder law attorney and inquire about a life estate deed and how your property should be titled, because a Trust may not be the best option.
- Refinancing and Selling: Although refinancing and selling is not a situation where your home or other property must absolutely be removed from your Living Trust, it may be easier to deed the property from Trust and back to you personally. When refinancing or selling your residence titled in the name of your Trust, it will almost always cause issues for the lenders and title company. It often requires additional paperwork and support documentation. It shouldn’t be too difficult, but it is often easier for a client to remove the property from the Trust and back into their personal name(s) with a new deed for a $30.00 filing fee.
It is important to contact an estate planning attorney to discuss your estate planning options, along with how to fund your Trust with any real property you may own.
[i] Medicaid allows the recipient to own a residence, and does not count the residence as a countable asset if it has less then $552,000.000 of equity.
Posted on October 27, 2016
Tagged as Probate / Trust Administration