Adding a trust to your estate plan can be a smart move. A trust can help you achieve numerous financial goals and offers a broad range of protections.
One of the most important parts of creating a trust is funding the trust by transferring assets into the trust. Many people use their primary residence to fund a trust or specifically create a trust to hold the title for their home. There are both benefits and one potential and noteworthy drawback to this approach.
What’s the drawback that stops people from using a trust?
When an individual owns a home and lives in it as their primary residence, they can report the property to the state as their homestead. They will receive a reduction in the property taxes that they pay as an individual claiming that residence as their homestead.
A trust is not a person, which means that even though you treat the property as your primary residence when you transfer ownership to the trust, you may have to pay slightly more in property taxes. What are the benefits of changing the ownership of the property to a trust?
You protect the property from creditors
Who caused the car crash or some other incidents that leaves another person hurt, they could file a personal injury lawsuit against you. If that lawsuit is successful, the other party could take legal action against your biggest assets.
After you die, creditors can also make claims against your estate, potentially forcing your executor to sell off your assets. Moving your home into a trust means that creditors will not be able to come after it now or after your death. Even Medicaid, which attempts to recover assets from someone’s estate, may not be able to make a claim against a home held in a trust.
You connect with benefits as you age
Older adults sometimes need more support as they get older. Those living in a nursing home or requiring inpatient rehabilitation services either need to qualify for Medicaid benefits or pay out of pocket for those costs. Creating a trust years before you apply for Medicaid will allow you to get benefits when you need them without needing to pay out-of-pocket or deal with a penalty.
Thinking about your goals and likely needs as you get older can help you create an estate plan that works for your situation.