Should I Put My House Into A Trust?

The question of whether or not you should put your house into a trust hinges on several important considerations.

The first is consideration is identifying whether doing so is a want or a necessity.

In most situations, it is not a “necessity” that people have their houses in trusts. Most people want their house in a trust because a friend did it and it sounds trendy.

There are, however, some benefits. But just because there are benefits doesn’t mean they apply to you, as you’ll see.

The second consideration is cost.

A simple trust costs $2,000. If you’re going the trust route, it’s crucial that you have whats called a “pour over will,” which adds another $700 to your bill. You also have to deed your house into trust, and a deed can go from $100-$200…

So, total, you’re looking at a pricetag of about $3,000 to put your house into a simple revocable trust.

Keep that price in mind as you continue reading.

Identify why you want a trust

It’s great that your friend Susan has a trust, good for her. But why do YOU want one. Can you articulate a clear reason as to why you want or need one?

The problem with lawyers is that everything is shrouded in mystery with terms that people don’t readily understand.

For example, if I told you: “You need an irrevocable trust because if you don’t your house will be subjected to the creditors claims period, medicaid recovery, and probate fees and potential taxes”

That sounds scary. That’s how trusts are sold. Legal jargon is used to pressure people into believing that having a trust is a necessity.

People have become so skeptical of any estate plan that DOESN’T involve a trust!

But trusts aren’t really a “necessity” for most people, depending on how you define necessity.

1. Probate Avoidance

This is probably the most commonly cited reason people want a trust, to avoid probate.

Probate can be a hassle, and unfortunately the nightmarish stories of protracted probate take center stage in people’s perception of the law.

But probate really isn’t the nightmare it’s been made out to be.

The probate process takes a minimum of 6-months in Connecticut and 1 year in Massachusetts. Most of the time, everything in probate is handled administratively meaning you don’t even need to go to court. Ever.

An “executor” is appointed to handle the estate, usually within a month unless you get pre-approval by all heirs in which case the executor is appointed immediately.

With a validly executed will defining probate powers, the executor is able to start taking immediate action. The executor can sell the house, or allow heirs to take possession. The executor can also make advance distributions of money to the heirs.

If the heirs want to sell the house, the executor can put it on the market. This would happen with a trust too if the heirs wanted to sell it. Whether your house is in trust or not, it would take the same amount of time to list and sell the house.

If your kid wants to keep it, then there’s no need to sell it. But through probate or a trust your kid can have access to your house regardless.

Each situation is variable, so this isn’t a one-size-fits all explanation, but I’m just addressing some of the common fears.

One fear is if the house goes through probate it’ll be jammed up for years or something. That doesn’t reflect the typical reality of probate.

For a house to be jammed up for years there would have to be a serious will contest (which can easily be avoided with a validly executed will), or many creditors, lawsuit claims, or liens on the house. These things would affect your house if it were in a trust too!

The fees of probate hover around $3,000 for a typical estate.

Remember that was about the pricetag for a trust.

The problem is, many times, people don’t put everything in trust. There’s always something someone leaves out and your estate may still need to go through probate anyway. Let’s say you opened a new bank account that you never put into your trust because it slipped your mind. To get the money in that account, now your estate is being probated and you ended up spending $6,000 total – $3,000 on the trust and ~$3,000 in probate ( a lot of times probate is actually less than $3,000 but I’m giving like a median number.)

BOTTOM LINE: I think probate avoidance is the strongest argument for a trust, but it’s definitely not a necessity. There’s no serious urgency involved, and the cost savings aren’t stark. This is why it comes in handy to speak with an attorney because everyone’s case is different. If you have one house going through probate and your kids are going to want to sell it, I personally don’t see the value or cost-savings in spending $3,000 on a trust to avoid probate in that scenario. If you have multiple houses across different states, then a trust starts to make more sense.

2. Creditor Avoidance

Another commonly cited concern is avoiding creditors. People want their houses in trust because they don’t want to let creditors get to it.

In Connecticut and Massachusetts you’re entitled to a $250k homestead exemption meaning a creditor can’t come after your house, under $250k. (In MA you have to file a homestead declaration, I’ll talk about that in another blog.)

This, still, may not add the protection to some people’s satisfaction.

The only way to fully avoid creditors is by putting your house into an irrevocable trust before you accrue creditors. So any existing creditors will still be able to have a claim on your estate, but new creditors won’t after you make an irrevocable trust.

An irrevocable trust means no take backs. The house, technically and legally, is not yours anymore. You can list yourself as a beneficiary, but it’s dicey. In MA, creditors can unequivocally reach whatever assets you allow yourself to access from the trust. So, avoiding creditors does protect your assets for the future generation, but the sacrifice you’re making is you’re basically giving away your assets.

In CT, a new law was enacted in 2020 that allows you to still be a beneficiary on an irrevocable asset protection trust, but there are some caveats to that. Essentially, creditors can still garnish whatever income you personally get from the trust, but they can’t reach the actual trust. You also may be able to take some money out for family expenses, but a court can garnish the surplus to creditors. Another benefit to CT’s trust system is that you retain more control over how the trust is managed, but… you still don’t have full access to the money. Whatever access you allow yourself to have, can be garnished by creditors. Overall, it’s a way better system than MA, but… there will never be a way to, legally, completely avoid creditors while also being allowed to have full access to your money. You can’t “have your cake and eat it too” so to speak.

3. Taxes

Many people cite taxes as a reason to get trusts. If your net worth is under $13.9m in Connecticut, or $2m in Massachusetts, you will not owe taxes.

If you are worth that much, a trust can help reduce taxes.

4. Privacy

Trusts don’t go through probate, therefore the information is private. When it comes to putting your house into a trust because of “privacy”… there really is no point.

Your house is on the registry of deeds. It will always be public information.

Unless you really don’t want people to know that your heirs own the house…Then maybe you do get a trust, but considering that homeownership is so easily traceable, that option seems completely pointless to me personally.

5. Medicaid Estate Recovery

If you’ve been on Medicaid (Husky D, or certain MassHealth plans), then the state can recover your medicaid bill from the proceeds of the sale of your house upon death.

You can avoid this by putting your house into an irrevocable trust, or by executing what’s called a “life estate deed.” Or you can give your house away, deed it to a kid.

Both are mechanisms for transferring ownership in a way to avoid medicaid. Both are essentially giving away your ownership interests completely.

Creditor and medicaid avoidance techniques are highly restrictive to you as the transferor.

But if you were choosing between an irrevocable trust or life estate deed, the deeds tend to be cheaper.

A Medicaid Qualifying estate plans can go for $3,000 – $5,000 while a simple life estate deed is $500 and achieves the exact same goal.

So, it’s questionable if you “need” a trust in that scenario too.

THE BOTTOM LINE

There are some reasons to put your house into trust.

I’d advise doing so if you have out of state property, or multiple properties.

If you just have a single house, I don’t really see too much immediate benefit. If you have an extra $2,500 – $3,000 lying around and will feel comfortable putting it towards a trust then by all means do so… Butjust be aware that even without a trust your loved ones or beneficiaries listed in your Will will still inherit what they deserve the only possible inconvenience would be a wait time and various fees.