As a home owner, it is essential to not only familiarize yourself with the various ways to hold title, but also to be certain as to how you are holding title to your real property.
This knowledge is important because it may influence many tax and legal consequences during your life time and whether (and how) the property is transferred to your heirs when you die.
One option is to hold title to real property in a living trust. In this scenario, a trustee would hold the legal and equitable title to the property on behalf of the beneficiary who is to retrain all of the rights and responsibilities. As such, only the beneficiary has the right to benefit from the property.
There are many advantages to a living trust, five of which are detailed below.
- The ability to maintain confidentiality is an enormous benefit of holding title in a trust. A Title Holding Trust or Land Trust allows an individual a way to purchase, hold and sell real estate without revealing the owner’s identity. The beneficiary (owner) simply transfers the title by giving the Trustee written authorization to carry out the transactions on his or her behalf. The owner’s real name will not appear on any public records. This is especially estate investors can acquire real property without tipping off sellers or competitors.
- While real estate is generally subject to probate upon the death of the owner, when property is held in Trust, namely a Title Holding Trust or Land Trust Agreement, probate is not necessary to pass title since these agreements provide for succession of ownership upon the death of the beneficiary. For example, a woman may create a Title Holding Trust name herself as the beneficiary, but simultaneously name a successor beneficiary. Once she (the beneficiary) dies, the property will vest whoever has been named successor beneficiary. As such, property can passed at death from one person to another without the need for probate. Reminder: Probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administering of a deceased person’s will or the estate of a deceased person without a will. (Thanks for the definition Investopia!)
- Holding title in a trust further simplifies planning for the future, because beyond prematurely naming an heir, it allows the successor beneficiary ( or beneficiaries) to easily be changed at any time by simply completing and filing a change of beneficiary form. However, until the death or disability of the trust creator, the property in the living trust is treated normally.
- When a property is being gifted or transferred, when the title is held in trust ONLY the signature of the trustee is required. This is especially useful when there are multiple beneficiaries (owners) of a specific property. For example, if a commercial property is owned by 5 investors and the group decides to sell, only the trustee would have to sign all the documents. This helps to prevent delays and streamline any transaction process.
- Asset protection! If the beneficiary of the trust were to be sued to any reason, he or she may simply step down as beneficiary. Once this happens, there’s no link for the person suing to access the assets.
This informative post by Money CNN provides a run-down on the types of trusts that exist, as well as the varying benefits they offer.
Complex though they may seem, trusts are not as complicated once you understand the terms, the players involved and the laws that apply to them. While we do promote holding the title to your real property in a trust, we ALWAYS advise that you do your research, as well as meet with financial advisers to determine the best decision for your situation. If you are in the market for trusted estate planners, we highly recommend Hiraizumi & Ngo – a local dynamic duo we have gotten to know through our business mixer group!