A family trust is an excellent estate planning tool, which can allow you to pass property to beneficiaries after death without the expense or delay of probate court. A family trust can hold title to almost any type of property, including real estate.
Setting Up a Family Trust
A trust is really nothing more than a way to hold property. A grantor (or settlor) sets up a trust and then transfers title to the trust, which is managed by a trustee. Typically, the grantor uses a quit claim deed to make a transfer of their real estate.
The grantor can name him or herself as the trustee or appoint someone else. The trust also identifies the beneficiaries of the trust assets, who are the people who enjoy the benefit of the property.
A trust should direct the trustee how to manage the property and usually includes instructions on what to do when the grantor dies. For example, you should name the people who will inherit from you.
Why Use a Family Trust?
Aside from avoiding probate, trusts are private. Whereas you must file a will in probate court, which makes them public, trusts do not have to be filed. If you do not want strangers to find out what property you owned while alive, you should use a trust as your primary estate planning tool.
A trust can also mask your identity as the beneficiary of the property, especially if you name someone else as trustee. Ultimately, however, a judge could order the trust to disclose your identity if the trust is sued, so keep that in mind.
Selling Trust Assets
Selling property is an essential part of investing. If you appoint yourself as trustee, you can easily sell property. Because you control the trust, you control what property the trust holds. For this reason, most people appoint themselves trustee and then appoint a successor trustee to take over after death.
However, banks might want a piece of property to be moved out of the trust before they will lend to you. If you want a loan to make repairs or upgrades, you might need to move the property back into your own name.
Buying Real Estate
The simplest way to buy is to buy in your own name and then transfer the real estate to the trust. However, if you need a loan to buy the home, then you must read carefully. You still remain personally responsible for the mortgage, which you can’t transfer to the family trust.
Some mortgages also have a “due on sale” clause. This clause requires that you pay the balance on the mortgage when you transfer title. You will need to work with a lender to waive this requirement before you transfer your property into the family trust.
Speak to an Experienced Silicon Valley Attorney Today
Trusts are excellent tools for savvy investors, but you need to make sure everything is lined up before making your first purchase. At Kalia Law, we work with investors to ensure legal compliance. Contact us today by calling 650-701-7617.