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| photo by Amir Zee | May 24, 2018, Long Beach |
I am writing this post because few of you ask about the benefit of family trust last week. My answer is to talk to your attorney Before you do anything. Each person situation is different, and an expert attorney in family trust planning will tailor the best plan for you.
Trust may provide legal and tax advantages. Mostly it includes estate planning advantages. Here are some possible considerations you may want to explore with your legal/tax/lender/escrow professionals:
1) If you are getting a loan when you purchase, most banks will not allow you to buy in trust as they require a person (not an entity) to hold responsible for the loan. Some folks who desire to put their home in a trust will file a quit claim deed after closing to transfer Title to their Trust.
2) If your home is in a Trust, it may provide a faster way to transfer rights of ownership where you decide who gets your ownership rights. Possibly avoiding probate and any laws which would default dictate who would get the rights upon your death.
3) If your home is in a trust, it may provide some protection if you are sued personally.
Let us look at two type of trust which are more common in real estate:
A REVOCABLE LIVING TRUST
May be used if a property owner wishes to make provisions for the transfer of property upon death but is not currently ready to make an actual transfer of ownership. For a trust to be revocable, the “trustor” must reserve the right to terminate the trust and retain all trust property. When property is placed in a revocable living trust, there is no “change in ownership,” and thus, no reassessment to the current values.
Upon the death of the trustor, the revocable living trust becomes irrevocable. In preparing a revocable living trust, there should be planning to qualify the real property for the parent-child or another exclusion to avoid a “change in ownership,” and thus reassessment, upon the death of the trustor.
Trust may provide legal and tax advantages. Mostly it includes estate planning advantages. Here are some possible considerations you may want to explore with your legal/tax/lender/escrow professionals:
1) If you are getting a loan when you purchase, most banks will not allow you to buy in trust as they require a person (not an entity) to hold responsible for the loan. Some folks who desire to put their home in a trust will file a quit claim deed after closing to transfer Title to their Trust.
2) If your home is in a Trust, it may provide a faster way to transfer rights of ownership where you decide who gets your ownership rights. Possibly avoiding probate and any laws which would default dictate who would get the rights upon your death.
3) If your home is in a trust, it may provide some protection if you are sued personally.
Let us look at two type of trust which are more common in real estate:
A REVOCABLE LIVING TRUST
May be used if a property owner wishes to make provisions for the transfer of property upon death but is not currently ready to make an actual transfer of ownership. For a trust to be revocable, the “trustor” must reserve the right to terminate the trust and retain all trust property. When property is placed in a revocable living trust, there is no “change in ownership,” and thus, no reassessment to the current values.
Upon the death of the trustor, the revocable living trust becomes irrevocable. In preparing a revocable living trust, there should be planning to qualify the real property for the parent-child or another exclusion to avoid a “change in ownership,” and thus reassessment, upon the death of the trustor.
AN IRREVOCABLE TRUST
Is used when a property is transferred during the lifetime —or upon the death—of the property owner, or when the beneficiary of such a trust is changed. These events will (for property tax purposes) generally trigger a reassessment. However, if the parent-child exception applies, and with proper planning, it is possible to leave property to a child in trust and be relieved of the burden of high property taxes. With an Irrevocable Trust, a property owner can maintain ownership of the property for the duration of the owner’s life.
When property is left to more than one child, one of these children may want the property, and the other may seek money or assets of equal value. If the trust provides only the property to each child equally (each getting a one-half interest), it will be necessary for one child to transfer their interest to the other in exchange for an equalizing payment. This would no longer be a parent-child transfer, but would be a sibling-to-sibling transfer, which is not excluded from reassessment—thus, a change in ownership will have occurred, and the property will be reassessed. In either case, consult with a real estate or estate planning expert for advice before claiming any exclusions.
NOTE: This information is not intended as a complete guide regarding property tax laws. Again, please talk to your attorney. Your questions and comments are welcome as always. Be sure to subscribe for future conversations.
Is used when a property is transferred during the lifetime —or upon the death—of the property owner, or when the beneficiary of such a trust is changed. These events will (for property tax purposes) generally trigger a reassessment. However, if the parent-child exception applies, and with proper planning, it is possible to leave property to a child in trust and be relieved of the burden of high property taxes. With an Irrevocable Trust, a property owner can maintain ownership of the property for the duration of the owner’s life.
When property is left to more than one child, one of these children may want the property, and the other may seek money or assets of equal value. If the trust provides only the property to each child equally (each getting a one-half interest), it will be necessary for one child to transfer their interest to the other in exchange for an equalizing payment. This would no longer be a parent-child transfer, but would be a sibling-to-sibling transfer, which is not excluded from reassessment—thus, a change in ownership will have occurred, and the property will be reassessed. In either case, consult with a real estate or estate planning expert for advice before claiming any exclusions.
NOTE: This information is not intended as a complete guide regarding property tax laws. Again, please talk to your attorney. Your questions and comments are welcome as always. Be sure to subscribe for future conversations.
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