NA - Living trust for real estate

mandm

mandm

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I’ve been seeing a lot of advertisements lately pushing living trusts for real estate holdings and I was curious why?

I know what a corporation / LLC / company is, you form this with the state and then any subsequent real estate can be filed directly in that name, the state would not allow two entities with the same name to be formed. Transactions in the entity are relatively simple.

How do you form a trust? Is this private paperwork or registered somewhere? How do you pick the name for your trust, yes I’ve seen people usually use their full name followed by Trust, do you have to do that or can you maintain any anonymity? How are transactions handled?

Are there any ongoing maintenance to maintain a trust, costs, etc? Pros cons experiences?
 
Typically this is done for estate planning. If you think your estate might approach the estate tax limit, trusts MAY be able to help.

They also might help avoid probate.
 
I see living trusts quite often when land is involved. I assume they use it to help with estate planning, not with legal protections.
 
Sounds to me like the lawyers are trying to drum up new business. I looked into it and it wasn’t cheap. It was like $4-5000 to set up.
 
SoonerAviator said:
I see living trusts quite often when land is involved. I assume they use it to help with estate planning, not with legal protections.
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Mostly correct. Depends on the trust. Revocable trusts are strictly estate planning devices. Irrecovable trusts will do that but can also provide some legal protections. Which, if any, one needs is part of the personal estate planning discussion.

In your case, @mandm, there's yet another wrinkle. The "Illinois Land Trust" is a stat-specific creature originally established for privacy and has a number of features, variations, etc which are are different.
 
We bemoan the existence of the 'Corporate Farm', and the demise of the family farm, without realizing that the reason for such is the existence of inheritance tax (a.k.a. the 'Death Tax'). Family farms grow smaller and smaller in size because the next generation has to sell off land to pay the taxes (because farming isn't usually very profitable), until one day, the only thing left is the farmhouse, surrounded by McMansions. Thus, 'corporations' form to protect the land from being essentially stolen by attrition due to taxation. The corporation can survive generations.

I'm imagining that 'Living Trusts' would be similar - offer some protection from oppressive taxation, as people look to protect assets built up over a lifetime.
 
A living trust, also called an in vivos revocable trust does NOTHING for liability protection. Since the grantor maintains complete control over the assets and can remove them from the trust at any time, they're reachable by judgement.

What it is good for is AFTER you die. The revocable trust becomes irrevocable. The terms of the trust indicate how the proceeds are to be distributed. Indeed this bypasses probate in most cases. Of course, unless you have LOTS of assets, probate isn't that big of a deal in most places. There are a couple of things a trust is useful for. First, if you have beneficiaries that are minors or possibly not "trust worthy" or they're special needs and a whopping immediate slug of cash could disrupt their medicaid or whatever, you can craft the trust to get around some of those issues where a will can not.

The other thing, as someone else aluded to, is if you're inheritable estate is greater than the estate tax exclusion (currently over $13 million), you can craft it such that some future generations are able to avoid having a tax bite taken out of it. I set one of these up many years ago when congress was messing around with the limits, but now it's kind of mooted (I'm not quite to the point where I'm hitting that value).

How you create it? You have a lawyer draw up the trust documents. Then you have to title the assets that you are concerned with INTO the trust. A pour over will can say "take anything I forgot about and dump that into the trust when you settle the estate" as well. This allows assets to be distributed as to the trust terms rather than having to also spell it out in a will (which may not be possible).

In my case, I paid a lawyer to do it all along with preparing my wills and durable and medical powers of attorney and advance medical directives, all for me and Margy. I'm thinking it ran about $3000.

Frankly, the trust is the least valuable part of that. Having the medical stuff taken care of can be a savior for your spouse or children or whoever has to deal with things should you become incapacitated. We were lucky to get that signed by my Alzheimers diagnosed mother in law while she was still lucid enough to execute the thing.
 
dans2992 said:
They also might help avoid probate.
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This is why my mom and I have a trust on her house, and other things. My name is on everything valuble that she has. Basically when (and if she dies before I do) she passes, everything reverts to me.

And the mortgage company did the trust on the house and did not charge us for it. But I did have run the paperwork between the courthouse and the mortgage company. That was almost 100 feet away...
 
Zeldman said:
This is why my mom and I have a trust on her house, and other things. My name is on everything valuble that she has. Basically when (and if she dies before I do) she passes, everything reverts to me.

And the mortgage company did the trust on the house and did not charge us for it. But I did have run the paperwork between the courthouse and the mortgage company. That was almost 100 feet away...
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If you hold everything jointly or as POD/TOD, a trust isn’t really all that helpful unless there’s other income related issues.
 
Right now the trusts are being advertised as a way to hold real estate and to maintain your privacy and this is done in response to the new regulations starting next year which isn’t as big of a deal as people are making it out to be, but I’m wondering what trusts are about as I’ve heard about them from time to time.

One thing that I’m not understanding is how can you put a house in a trust unless it’s fully paid off, if you have a loan on the home then you’d need to satisfy that before transferring that asset upon ones death.

Is a lawyer required? I’m also seeing that you can have a trusted person aka a trustee to manage it.

Can you therefore create ABC trust, transfer your real estate to it, then the trustee will manage the trust per the agreed terms? (In an ideal world) Then in this case, how do you prevent another person from also creating ABC trust?

Then what is made public information, that the property is owned by ABC trust via the deed, but not the trustees name or the agreement of the trust?

If you just want something to protect your privacy, it sounds like you can make your own agreement, design the terms how you want and change them as you see fit since it’s revocable, without having to form a company, deal with annual reports, etc. But I’m sure that I’m missing something to it, much doesn’t seem to be explained on the internet about the actual process.
 
Upon death of a trustor the control of assets is assumed by the trustee. The benefit of no probate is there’s no third party intervening (interfering) in the management of the asset. A living trust is a revocable trust. Upon death of the trustor the trust has to be converted to an irrevocable trust.
 
Stewartb said:
Upon death of a trustor the control of assets is assumed by the trustee. The benefit of no probate is there’s no third party intervening (interfering) in the management of the asset. A living trust is a revocable trust. Upon death of the trustor the trust has to be converted to an irrevocable trust.
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Can the trust live on in its own entity after the trustors death or does it require changing the assets into the beneficiaries name?
 
That’s a question for a trust attorney in the state the assets are recorded in.
 
mandm said:
Is a lawyer required? I’m also seeing that you can have a trusted person aka a trustee to manage it.
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The trustee can be anyone. For the revocable thing, its usually the grantor himself. My wife and I are successor trustees on each other's trust. My sister (high powered attorney) is the alternate trustee if the others are unavailable.

Still, it behooves you to have an attorney draft the trust lest you screw something up in the process.
 
I have a trust. The main reason is that almost all the wealth is on my side and I married my husband late, when I was 60. He has two children and I have none. If I die before him, I want him to have use of the money to support himself, but then when he dies, have any remaining money pass to my nieces, not to his daughters. If we had simple wills, even if his said the money he inherits from me would go to my nieces, his daughters could challenge that, which would tie things up, or they could work on him to get him to change his will if he begins to suffer from dementia. A friend we both trust (and who is quite wealthy, so he "gets" trusts) is the trustee. I purposely left the house out of the trust so that my husband could do what he wanted with it without having to go through the trustee. He needs a place to live no matter what, so even if he sells it, not all the money could go to his daughters. If some of it does, so be it. In the more probable event he dies first (he has health problems and I don't), I will reassign the trustee role to one of my nieces.
 
Would you rebuild your own airplane engine? ... I didn't think so.

These are questions to ask an expert estate planning attorney in your state. As @flyingron said a rev trust is a small piece of a good estate plan.
 
Would I hire a lawyer to open a LLC, no… it depends upon the complexity. Some things are simple. You could say forming a LLC should use a lawyer and do it right etc, or you could use the form paragraphs already created for you.

Did I know about how easy this was when I first did it? No, I didn’t. But after some research I did.
 
Not sure what an LLC has to do with an estate plan or a rev trust but, yes, they are easy. 10 minutes max on line plus $150 does it in our state.
 
Keep in mind you can’t put LLC or corporation shares or assets into your trust.
 
My world revolves around our family’s S Corp, so my comment reflects that. Another example of why a trust attorney is important.
 
flyingron said:
A living trust, also called an in vivos revocable trust does NOTHING for liability protection. Since the grantor maintains complete control over the assets and can remove them from the trust at any time, they're reachable by judgement.

What it is good for is AFTER you die. The revocable trust becomes irrevocable. The terms of the trust indicate how the proceeds are to be distributed. Indeed this bypasses probate in most cases. Of course, unless you have LOTS of assets, probate isn't that big of a deal in most places. There are a couple of things a trust is useful for. First, if you have beneficiaries that are minors or possibly not "trust worthy" or they're special needs and a whopping immediate slug of cash could disrupt their medicaid or whatever, you can craft the trust to get around some of those issues where a will can not.

The other thing, as someone else aluded to, is if you're inheritable estate is greater than the estate tax exclusion (currently over $13 million), you can craft it such that some future generations are able to avoid having a tax bite taken out of it. I set one of these up many years ago when congress was messing around with the limits, but now it's kind of mooted (I'm not quite to the point where I'm hitting that value).

How you create it? You have a lawyer draw up the trust documents. Then you have to title the assets that you are concerned with INTO the trust. A pour over will can say "take anything I forgot about and dump that into the trust when you settle the estate" as well. This allows assets to be distributed as to the trust terms rather than having to also spell it out in a will (which may not be possible).

In my case, I paid a lawyer to do it all along with preparing my wills and durable and medical powers of attorney and advance medical directives, all for me and Margy. I'm thinking it ran about $3000.

Frankly, the trust is the least valuable part of that. Having the medical stuff taken care of can be a savior for your spouse or children or whoever has to deal with things should you become incapacitated. We were lucky to get that signed by my Alzheimers diagnosed mother in law while she was still lucid enough to execute the thing.
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Amen to everything above. In addition, we titled almost everything in both our names when they were titled to the trust. When Tammy died, I got a step up in basis for everything that was jointly titled. Our two houses and the stock in one of the companies I owned got gigantic steps up in basis.

I had a real estate agent come out and determine what each house was worth on the day Tammy passed. For the stock (and funds) they used the average of the high and low prices on the day she passed to determine the basis.

California doesn't let living trusts survive an unlimited number of generations. I don't know the limit off hand.

We had a trust attorney put ours together. It was a complicated estate, but I only needed a few trips to the attorney's office to settle the estate after I lost my wife.
 
There are so many positives to doing this, it is well worth the "scheckles" you're going to spend to get it done.

Crashnburn said:
California doesn't let living trusts survive an unlimited number of generations. I don't know the limit off hand.
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It does with a Dynasty Trust, they are the spoons that feed the trust fund children.

I believe with a living trust once its purpose is fulfilled, or becomes impossible to fulfill it can end. I also seem to remember California law requires a trust to terminate within 90 years or no later than 21 years after the death of the last surviving beneficiary.
 
mandm said:
One thing that I’m not understanding is how can you put a house in a trust unless it’s fully paid off, if you have a loan on the home then you’d need to satisfy that before transferring that asset upon ones death.
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When we still owed on our house, the stipulation in the trust was that my life insurance (asset) was to first satisfy the mortgage, and then provide for the children's welfare and education. Should these no longer be needed there would be a yearly allotment to my wife.
 
Stewartb said:
Keep in mind you can’t put LLC or corporation shares or assets into your trust.
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:rolleyes: Example of why one shouldn’t get free legal advice on an aviation forum or internet for that matter.
 
heck, my daughter’s a lawyer and teaches law at a major University. She uses the same trust attorney I do. She says trust law is a specialty most attorneys don’t understand!
 
Stewartb said:
heck, my daughter’s a lawyer and teaches law at a major University. She uses the same trust attorney I do. She says trust law is a specialty most attorneys don’t understand!
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Word.... thought much of this is some basic boilerplate insert information here stuff, my lawyer referred us to someone else to do ours. Of course, she looked it over to make sure we covered everything, but all the
same.

As for coming here to get advice, in some cases, this got me thinking and then opened up a door to many other questions on things I didn't think about.
 
Stewartb said:
heck, my daughter’s a lawyer and teaches law at a major University. She uses the same trust attorney I do. She says trust law is a specialty most attorneys don’t understand!
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Yes. My wife retired as an SVP in a megabank Investments & Trusts division and had many horror stories over the years about incompetently prepared documents. It was not unusual for her to have to go to court to get things straightened out.

From the OP's posts it is clear that he thinks this is about documents. It is mostly not. It is about planning, strategies, and taxes. That is where a good estate attorney provides value added. The attorney's assistant does the dog work of piecing together necessary boilerplate with the client-specific language.

The other thing about this is that there are no do-overs. OP will be dead before any home-made documents see the light of day. At that point OP's executor may end up in court ($$$) to get errors fixed to the extent that they can be or to defend the estate against unhappy beneficiaries. Not all errors can be fixed.
 
TOD/Lady Bird deeds work fine if there is a single beneficiary that you are concerned about. If it is more involved it won't work. For instance, if I want the house to go to Margy if she's (still) alive or if not to our daughter ...
 
flyingron said:
TOD/Lady Bird deeds work fine if there is a single beneficiary that you are concerned about. If it is more involved it won't work. For instance, if I want the house to go to Margy if she's (still) alive or if not to our daughter ...
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I'm not a fan of TOD's because it creates a maintenance requirement. Divorces, deaths, children becoming adults, values of TOD assets changing, family squabbles, etc. Many events can require that TODs get changed with no errors. The classic Oops is an executor discovering that the decedent's life insurance pays out to an ex-wife.

Many of the maintenance tasks can be "automated" by language in the will or trust(s). @flyingron's example applies.
 
Morgan3820 said:
Sounds to me like the lawyers are trying to drum up new business. I looked into it and it wasn’t cheap. It was like $4-5000 to set up.
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Depends on state. DIY in California for under $100.

Paul

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Morgan3820 said:
Thanks, but I wouldn't move to Kalifornia if they paid me.
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Reminds me of my response to a job offer I got that have would required me to move to NJ. Politely told the headhunter that the job sounded great, but there had not yet been enough money printed to get me to move there.
 
Morgan3820 said:
Thanks, but I wouldn't move to Kalifornia if they paid me.
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No worries! We're not planning to take up a collection any time soon! :)
On point... some states, it's quite straightforward to create your own trust... even supposedly high-cost states.

Paul
 
mandm said:
I’ve been seeing a lot of advertisements lately pushing living trusts for real estate holdings and I was curious why?

I know what a corporation / LLC / company is, you form this with the state and then any subsequent real estate can be filed directly in that name, the state would not allow two entities with the same name to be formed. Transactions in the entity are relatively simple.

How do you form a trust? Is this private paperwork or registered somewhere? How do you pick the name for your trust, yes I’ve seen people usually use their full name followed by Trust, do you have to do that or can you maintain any anonymity? How are transactions handled?

Are there any ongoing maintenance to maintain a trust, costs, etc? Pros cons experiences?
Click to expand...

Privacy.

Stepped-up valuation of your property upon the death of the first trustor.

No probate on any real property held within the trust.
 
PaulMillner said:
No worries! We're not planning to take up a collection any time soon! :)
On point... some states, it's quite straightforward to create your own trust... even supposedly high-cost states.

Paul
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Did you do your own? Are you a trust attorney?
 
Stewartb said:
Did you do your own? Are you a trust attorney?
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Yes, did my own. No, not an attorney... I'm an engineer. Had an attorney review the trust when I got married ten years ago... we made content changes, due to the marriage. But she said the form and organization of it was fine,

Paul
 
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