Whether you have recently purchased your first home, or your 50th, you need to consider if creating a revocable trust is the right estate planning tool for you.
As the name suggests, a revocable trust is a tool that allows you to transfer your assets, such as your home, from your name as an individual into the name of your trust. A revocable trust can be modified, dissolved, rescinded, amended, etc.
You retain full control of all of the assets placed in the revocable trust and have the ability to remove an asset, should you so choose.
The main purpose behind placing your home in a revocable trust is to avoid probate. Probate is the legal process whereby the probate court manages the transfer of wealth from a decedent to his or her named heirs.
The length of time probate takes varies from state to state. In South Carolina, this process takes roughly 13 to 15 months to complete. Furthermore, the average cost of probate is approximately 3 percent to 7 percent of the value of your probate estate.
A revocable trust allows you to avoid such costs, delays and publicity of the probate process.
Other benefits to placing your home in a revocable trust are:
- In the event of incapacity or disability, your named trustee can manage your trust to protect your home.
- You can specify your heir and how he or she is to inherit your real estate property.
- If you are in a blended family by marriage, you can dictate the real estate property be managed by the trust for the benefit of your spouse, and how, upon their passing, the home is to be inherited.
- You do not lose any homestead rights when you transfer your primary residence into a revocable trust.
- A lender cannot enforce a due-on-sale clause if you are transferring your primary residence to a revocable trust.
- You can still deduct your mortgage interest from your income taxes.
For those individuals who own real estate property in multiple states, a revocable trust should be strongly considered. Without it, upon your passing, your estate must complete the probate process in every state where you own property in your individual name.
For example, Owner is a resident of South Carolina. Owner owns her primary residence in Bluffton and a condo in Palmetto Dunes. Owner also owns a condo in New York, a town home in Texas, and a condo in Florida.
All the deeds to this property state that Owner is the sole owner of these real estate properties.
Upon Owner's death, her personal representative (executor) will commence the probate process in South Carolina because South Carolina is her state of residence. Owner's representative will also have to commence ancillary probate proceedings in New York, Texas and Florida.
The South Carolina probate case will have to remain open until all the other states' probate processes are completed.
A revocable trust avoids this entire scenario.
Revocable trusts are a great estate planning tool for homeowners. Contact a local estate-planning attorney and ask how you can create a revocable trust.
Rebekah N. Freeman is an associate attorney with Elder Law & Estate Planning Center.