What Is A Real Estate Trust? Is It Worth It?

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What Is A Real Estate Trust? Is It Worth It?

What Is A Trust?

First, let’s look at what a real estate trust is. A trust is a fiduciary arrangement that allows a third party or trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways; they specify exactly how and when assets pass to beneficiaries.

To keep it simple, it's a document that states who gets what. The trustee controls the trust for the beneficiaries. Beneficiares are the people who are going to receive the assets in that trust. An example would be a mother, who is the grantor or trustee, for the two beneficiaries who are her children.

How It Works

Let's just say that trust contains a house, some family jewelry, and bank accounts. In the beginning, Mom controls her own trust. However, upon her passing, Auntie Donna takes over. Now Auntie Donna is going to be the one who distributes the assets in that trust on behalf of Mom.

Everything and everyone is defined within the trust. This way, we know who is giving away the assets and who is receiving them. The wishes of the trust maker are put in writing so that their wishes are fulfilled and binding.

Why A Trust Is Important

Why would you ever want a trust? The last thing you ever want to do is have your loved one’s assets go into probate. A trust allows the assets to go to the beneficiaries without having to go through court. If you have to go through probate and the assets go to a court to distribute, you are likely going to have to pay attorneys fees, court fees, and additional taxes.

Many people think that a will is enough protection, but many times it is not. There are benefits to having assets like real estate in a trust. Let's talk about a few.

The Benefits

The first one is the speed of distribution. The beneficiaries are going to receive their inheritance much faster than if it has to go through a probate proceeding. Second, there could be fewer taxes to pay with a trust if the trust is drawn up correctly. The third aspect is control.

The trustee can control who gets what and when. Some examples of this control are that the trustee can say that grandchildren get money towards their college tuition, or they can also stipulate that one of their children does not take any of the inheritance until they turn 25. The other aspect of control is the trustee can control who doesn't take from the trust or how often a person can take from the trust.

Let's say you have a daughter who squandered money in the past. Maybe you state in your trust that she gets paid a certain sum every year versus one lump sum. Or, in the case of a divorce, maybe your child’s spouse gets nothing. Another aspect is you have much more privacy with a trust. In this case, distribution is going to be private and not subject to court proceedings and costs.

If A Loved One Passes

In terms of real estate, what happens if a loved one passes and their home is in a trust? If your loved one passes, and that property is in a trust, it's usually a good thing if you are one of the named beneficiaries. As I mentioned earlier, once a property goes into probate, it could be months or a year before the matter is settled in court.

When a property is held in trust, we can move forward with that sale if that is the wish of the trustee. The trustee can determine the terms of the sale, and the property can actually be closed. The money then goes into a named bank account for the trust.

The proceeds from that sale can go into that trust bank account and the proceeds can be distributed to the beneficiaries of the trust. Sometimes, one family member can buy out the other beneficiaries, and that property can stay in the family.

I’m Here To Help

A trust allows for very clear instructions as to what happens to all of the assets in that trust—including real estate. I have assisted with trust sales in the past and can certainly help you as well. However, if you have specific questions about trusts, wills, and probate, please let me know so I can recommend an attorney for you to discuss your particular issues.

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