Living trusts can and often do purchase real property, including houses. A living trust is created during a person's lifetime and assigns a trustee the responsibility of managing assets in the trust for the benefit of beneficiaries. Many people create a living trust as a way to avoid probate. A living trust can be beneficial to hold title to the house in the trust in order to avoid probate. Additionally, many create living trusts to provide a means for earning investment income. In both instances, a living trust can purchase a house.
Living Trusts and Title
When a living trust purchases a house, this is carried out by the living trust trustee taking title to the house in the trustee's name. The deed on the house will list the trustee's name, followed by the designation "as trustee of the living trust." This means the trustee owns legal title to the property, but that title is always subject to the terms and conditions of the trust agreement.
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Benefits of Living Trust Property
There are several benefits of purchasing a home with a living trust. The house avoids probate after the death of its owner. The trust can earn income on the purchase if the house increases in value or if the trustee rents the house to create rental income. Purchasing through the living trust can also help protect the property from creditors and, in some cases, minimize income tax on the property.
Restrictions of a Living Trust
Some trust agreements restrict the type of property that the trustee can purchase for the living trust. It is therefore critical that the trustee examine the trust agreement before purchasing a home for the living trust. Some living trusts, for example, require the trustee to purchase mutual funds and nothing else. Real property investments are generally considered conservative investments, and therefore most trusts allow trustees to purchase houses.
Benefiting the Trust
The trustee should also keep in mind that the legal purpose of the trust is to provide some benefit to the beneficiaries identified in the trust. Therefore, the trustee needs to make an independent evaluation and determination that purchasing the house will provide a benefit to the trust generally and to the beneficiaries specifically. If purchasing a house is a bad investment, the trustee should not purchase the house for the trust even if authorized to do so by the trust agreement.
Avoiding Probate and Joint Tenancy
If you are the trustee of your own living trust, then you probably created the trust as a means to avoid probate in the event of your passing. Sometimes it is not necessary place title to the house in the trust in order to avoid probate. Instead, you can use a joint tenancy, which is a way to avoid probate by owning property with another person. While you are alive, you and the joint tenant are co-owners of the house. When you die, title under a joint tenancy automatically passes to the surviving owner. No probate is necessary.