Should I put my personal residence in the name of my trust?
Individuals often create a revocable Trust that governs their assets upon death. For more information on trusts see What is a Trust? After the creation of a Trust, it should be “funded”. Funding requires putting assets into the name of the Trust. One common way to fund a Trust is through your personal residence. This is accomplished with a deed conveying the real estate to the trustee of the Trust.
People often ask if they should transfer their personal residence into their Trust or keep it the way it is. As Michigan property laws continue to become more complex, there is no easy answer. Land division rights, transfer tax exemptions, principal residence exemptions and environmental concerns are just some of the issues that may arise.
Benefits of placing a residence in Trust
One of the main reasons people decide to transfer their home into a Trust is so their heirs avoid the probate court. The probate court process can be time consuming and expensive. If your home (and all of your other assets) are in the name of your Trust when you pass away, your trustee will be able to administer your Trust according to its terms, without the need for court involvement. Administration of your Trust may be a little smoother if the probate court can be avoided.
Privacy is another reason individuals decide to place their home in a Trust. The probate court process is public. If you want your asset distribution to be private, creating a Trust and properly funding it can help you accomplish that.
Disadvantages of placing a residence in Trust
One of the biggest disadvantages of placing a residence in a Trust is the loss of tenants by entireties status. In Michigan, property owned by husband and wife as tenants by entirety is sheltered from claims by creditors of one spouse, and property held in Trust is not. MCL 566.131 states “… a deed of gift, conveyance, transfer, or assignment, verbal or written, of property made in trust for the use of the person making the gift, conveyance, transfer, or assignment is void as against the creditors, existing or subsequent, of the person”.
Homeowners insurance coverage is another issue that may arise. Some companies may only cover a claim for the named individual and not the individual as trustee of a Trust. If a residence is placed in a Trust, individuals will need to contact their insurance company to make sure they are properly covered.
The same issue may arise with title insurance. Title companies may not cover an individual as trustee and extra insurance may be required. If the property is then later sold, title companies may also require additional deeds or documentation.
Typically, putting your personal residence in a revocable Trust is not considered a transfer of ownership for tax assessment purposes because it falls within the exception of MCL 211.27 a(6). However, every situation is different and speaking to a tax professional about your specific circumstances is recommended.
Disclaimer: This article only covers transferring your personal Michigan residence into a revocable Trust. Property located in another state or other types of property owned in Michigan, may be subject to a number of different statutes.
If you are considering a Trust or need other estate planning contact our office to discuss your options. 269-381-4471.
Comments