SHOULD YOUR HOME BE PLACED IN A TRUST
Clients often ask if it makes sense to put their home(s) in a trust. Since there are a few types of trusts which are appropriate for a home, the decision of which type is best depends on what one’s goals are.
If one is looking only to avoid probate and does not want to give up any control whatsoever, putting one’s house, condo or cooperative apartment into a revocable trust is an option. It involves having an attorney prepare the trust and then transfer the property into the trust by a change of deed. Other assets can also be placed into the trust. With a cooperative apartment, regardless of the type of trust you want to transfer it to, the cooperative may or may not permit it. If it is permitted, there are additional steps to the process. While a revocable trust avoids probate, with respect to the property you transfer to the trust, it does not protect the assets from creditors or from long-term care costs. It also does not help to avoid or minimize estate taxes.
The more common type of trust used for the home, is an irrevocable trust which is designed primarily to protect the home from long-term care costs, in case one needs nursing home or home care services down the road, and from other creditors. Since the trust is irrevocable, it can not easily be changed, if at all. It also involves a certain loss of control. If done for Medicaid purposes, the terms of the trust can give you certain rights, for example, to live in the house for the rest of your life, even though you will no longer be the legal owner. The terms can also provide you with the power to direct the trustee to sell the home, purchase another, or sell and invest the proceeds of the sale and pay you the income for the rest of your life. Properly drafted, the trust will not adversely affect any tax exemptions you have, mainly the STAR and veterans exemptions. One’s $250,000 capital gains tax exclusion can also be preserved, with the proper language included in the trust, assuming the home is your primary residence. Another objective served by the irrevocable trust is that probate is avoided. Such a trust does not remove the value of the home from your taxable estate, but if properly worded, it does avoid capital gains upon your death. In order to remove the home from your taxable estate, one would need a different type of trust, which is only advisable if you have a significantly large estate.
Of course, before making any decision with respect to transferring your home or other assets into a trust, you should seek the advice of an attorney who is experienced in both estate planning and tax matters.