Roadmap: Is It Time to Transfer Your Deed to a Living Trust?

With a revocable trust (a.k.a. living trust), a deed holder may keep full control and use of a home for life. The creator (grantor) makes the trust for a beneficiary.

A named trustee — and a named successor trustee to follow — will handle the assets owned by the trust on behalf of the beneficiary.

Co-owners may transfer a deed into a revocable trust together.

Why Create a Living Trust?

Real estate in a living trust gets around the costly, months-long asset distribution process upon the death of a solo deed holder or the last co-owner to pass away. The trust can keep the transfer of the home out of that public probate process.

A living trust is revocable. The term revocable means it is not set in stone. The trust creator may transfer the property back to their individual name later, if desired. It’s always possible to pick a new trustee, change the beneficiary, or modify the terms.

The deed holder’s successor trustee can act in ways similar to those of an agent under a power of attorney. That person will have authority to transfer the deed to your chosen new owner when you are incapacitated or after your passing. Without waiting for probate to play out, that person can manage or sell the home.

For deed holders without mortgages, the process is straightforward. But if you have a loan balance on the property, confer with your mortgage company in advance about your plans.

Do you benefit from property tax relief through a homestead exemption? It should carry over to the trust. But in some states you’ll need to file a new declaration of homestead, signed by the trustee(s). 

Is a Living Trust a Good Tax Strategy?

Speak with your tax expert about your complete situation. A tax specialist may point out these benefits, to name a few:

• As the trust creator designates a specified recipient of the home after death, there is no gift tax on the deed transfer during the trust creator’s lifetime. And property taxes don’t change. (Check into whether you should submit a transfer tax statement of value.)

• A trust can help a household reduce its state-level estate taxes when the deed holder passes.

• A trust has potential to save its beneficiary from a large capital gains tax bill if that person decides to sell.

If you are the trustee, the home will be linked to your Social Security number. So, you can sell it and personally claim the federal tax exclusion on capital gains. You’ll have your buyer pay the trust and then have the trust purchase your next home.

Does your town offer deed holders any amenities (waste pickup, parking permits, etc.)? Call your local officials first to be sure they’ll remain in place.

Will Your Insurance Policies Cover the Home in a Revocable Trust?

Before re-deeding your home, know whether your policies allow it to be deeded into a revocable trust. Specifically:

• Call your homeowners insurance agent. Most insurers allow for such changes, and premiums stay the same. Check first.

• Did you purchase an owner’s title policy at closing? Call the company. Most insurers can add endorsements for this, and premiums stay the same. Check first.

Uninterrupted protection matters if you later have to deal with loss or damage, boundary line questions, financing, or claims against your title.

What About Refinancing a Home in a Living Trust?

This depends on the lender and the loan agreement. Call and ask your lender what paperwork they will need.

This also depends on how you designed the trust. Does it contain language enabling the trustee to refinance? Is your title company on board if you have title insurance?

Many people use a living trust when they no longer need financing. Why? Because they don’t want to risk dying and leaving their successor trustee with a mortgage to resolve.

With your mortgage agent’s guidance, your property might have to come out of the trust for refinancing. Remember to deed your home back to the trust after closing, using a trust transfer deed.

Have you considered the transfer-on-death deed (a.k.a. TOD deed or beneficiary deed) for real estate? It might or might not be available where you are, and it might not be best for you. But it’s good to know if it exists in your state, so you can decide.

The First Part Is Creating the Living Trust

The trust is one document. The deed that puts the home into the trust is a second document.

So, the trust document comes first.

You’ll identify yourself, for example, as the Grantor and Trustee of the Revocable Living Trust of [your name]. You’ll identify the beneficiaries who will take title to your home. Name a successor trustee — a person to make decisions about your home later, after you no longer can. (You might think about naming a professional with no interest in your property to avert disagreements among your potential heirs.)

State that the trust survives you, date the trust document, and sign it with a notary public. (All co-owners must sign the trust document.)

You may write the trustee’s authority to finance or refinance the property into the trust document. Your named trustee (you may name yourself as trustee) must keep up the monthly mortgage payments, if applicable.

By creating a trust, you have declared that a trustee will make decisions about the property. A trustee must always adhere to the trust’s language and make decisions and take actions that advance the best interests of the future owner (beneficiary) and preserve the home’s value.

The Next Part Is Moving the Deed to the Trust

Follow all state requirements when deeding the home into the trust. State law sets forth the type of deed that can be used for this purpose. It will likely be a special warranty deed or quitclaim deed. We recommend checking with an attorney in your state to help you choose.  

After creating a trust, you’ll re-deed your house from yourself to, for example, “Wanda Green, Trustee, Wanda Green Revocable Living Trust” with the date included. This identifies but does not disclose the whole trust document. Your state might allow you to record the deed only and not expect you to record the full trust with it.

The legal description should perfectly match that of your current deed. All of the present deed holders must sign the new deed with a notary public. And the deed must be recorded in the county recorder’s office. Don’t wait. If you pass away before deeding your home to your trust, the home will go through probate — typically six months of administration. Similarly, if you ever revoke the trust, you must re-deed legal ownership into your name and record the deed.

Each county’s deed records office offers information about fees, tax affidavits, and supplemental forms.

And as Always…

This website provides general information, not legal advice.

Your wills, estates, and trusts lawyer or financial adviser can guide or review your work at any point in the process explained above. They can also advise on benefits impacts and other factors that won’t be obvious to most deed holders.

So, before forming a trust, sit down with an experienced estate planning attorney to go over the benefits, drawbacks, and other options.