The issue of placing your house into a trust requires a lot of understanding. Some people complain that they were previously told you cannot transfer a home into a Trust. If that were the case, a major asset in most people’s estates would be left vulnerable to probate. So not only were those people incorrectly instructed, but they are not even aware of the estate planning advantages that come with putting your house into a trust. This article will explain these advantages and provide you with further details regarding that transfer.
Putting your house in a Florida Trust
In Florida, putting your homestead and other real property is completely legal and is in fact protected by federal law to do so. But before any property can be put into a trust, the trust itself must be validly created. Here, at Finity Law, we have created a great amount of trusts as not only a great way to establish a strong estate plan, but to avoid probate. Probate can be a costly procedure that takes time and becomes part of public record. This public information can leave you and your future beneficiaries subject to solicitations and potential scams if real property is not properly planned for. Fortunately, your Florida homestead is not a probate asset and can normally be disposed of in a simpler process, but it is one that still needs an attorney. Generally, the transferring of your home into a valid trust is done at the same time the trust is created – however, this transfer cannot be done without informing both the county property records or your mortgage lender, if applicable.
How you do it
Choosing the type of Deed
You could use different kinds of property deeds to pass your home into your trust. Warranty deeds and quitclaim deeds are two common deeds. You guarantee that you have the legal right to pass title into the trust when you sign a warranty deed. Due to this usually not being an arms length transaction, a quitclaim deed, transferring ownership without any assurances is typically drafted. In several states, including Florida, a third choice is to transfer an Enhanced Life Estate deed or a beneficiary deed – commonly known as a Lady Bird Deed. This form of deed does not pass ownership immediately but at your death, unlike a warranty deed or quitclaim deed. [For more information on a LBD click here]. However, with the typical quit claim deed drafted, the creators of the Trust are going to simply re-title the property from their individual capacity over to the trust in their trustee capacity.
Prepare and sign the Deed
It is common to have an attorney draft up the deed transferring such important real property into the trust. You will need some information from your current certificate of title or deed in order to assist the attorney with this process. As listed in the county records, the “grantor(s)” area is where you fill in the current owner(s). As mentioned before, your trust will be the “grantee”. Per Florida law, it is required to have the grantor signing the deed in the presence of two witnesses and the deed must be notarized.
Letter to Lender
Although the goal is to keep most information regarding the trust private, when it comes to transferring your home into that trust, it is important that your mortgage lender be informed of such transfer. The reason is twofold, one being that your lender should be given proper notice of this transfer and second, without such notice, the mortgage lender may see this as a change in ownership and thus trigger a due-on-sale clause. By having an attorney draft up this letter with the appropriate information along with some minor trust documents, this common misunderstanding, accelerating the entire amount of the mortgage be paid, can be avoided.
Recording the Deed
Once the deed has been signed and fully executed, followed by confirmation from the mortgage lender, the recording process can be done. By recording the deed with the County Recorder or Registrar of Titles in your county, you can officially transfer your home and other real estates into your trust, which will be then reflected in the property records as being owned by the trust and not by any individuals – adding additional privacy to the property.
Make sure the trustee knows that the property is inside the trust.
Finally, record the transfer so your trustee/successor trustee knows what property the trust owns. Keep the deed of the registered property with your trust records.
Advantages of Putting House into a Trust
The Florida Constitution offers its residents unique homestead protections. A homestead is the primary residence of an owner, or the owner’s family, in Florida and is established if it is intended to be the permanent residence. If a Florida residence qualifies as a “homestead,” one of the protections offered is that against creditors, prohibiting most creditors from attaching any judgment to it, with the exception of mortgages, mechanic’s lines, and taxes. Further, in bankruptcy, a trustee may not liquidate a protected homestead to satisfy creditor claims.
Florida offers an additional homestead benefit of tax exemptions. A valid homestead is entitled to certain exemptions from taxation. Up to $25,000 is exempt from taxation on a valid homestead and starting from January 1, 2008 there is an additional $25,000 exemption on non-school taxes for valuation between $50,000-$75,000. These tax exemptions are not automatic and must be both applied for and approved by the County Property Appraiser’s office in which the homestead is in.
Lastly, having a valid homestead allows the owner to have a cap on the assessed value of that homestead. The assessed value of a homestead changes every year to the lower of: 3% of the prior year’s assessed value; or the Consumer Price Index. So, as your property increases in value, your property taxes remain fairly low subject to only that 3% increase. Additionally, the Florida constitution offers a portability provision for this tax exemption, allowing a homeowner to transfer their exemption cap to a new homestead, should they sell their prior homestead, but must do so within two years.
Disadvantages to Holding a Homestead in a Living Trust
There are similar scenarios, on the other hand, in which it would make more sense not to switch a homestead into a living trust. In Florida, if the owner is survived by a spouse or minor children, rights in a homesteaded property are “devise-restricted.” The interest descends according to statute, instead of transferring via a will. In multiple cases, the intricacies of how the statutory descent method operates are a little complicated. But the bottom line is that both the surviving spouse and the children are assumed to earn an interest in the homestead when a homeowner is married and has children from a previous relationship.
But maybe that’s not what you want to happen. So instead of a surviving spouse dividing a property interest with the children of the deceased spouse, you may choose to keep it straightforward and own the property as tenants by the entirety. Because of the “right of survivorship” inherent in the whole tenancy, the full title is automatically taken by the spouse who lives longer, and you do not have to think about the statutory distribution scheme. The surviving spouse will of course later move the homestead into a living trust so that the property descends outside of probate.
Consult with an Estate Planning Attorney
Although you may now know more about placing a house in a trust, it is always best to consult with an attorney to avoid any legal missteps that might cost you more later down the line. That’s why working with our Finity Law Firm estate planning attorney with years of experience managing trusts, wills, and financial planning is in your best interest.