Why Would You Put A House In An Llc

Why Would You Put A House In An Llc – When you say the word “trust”, many people think that only the super rich use trusts to protect their millions of dollars, but this is far from the truth. Yes, very wealthy families use trusts to reduce the size of their estates, but there are many great reasons why establishing a trust makes sense for the average individual or family. Two main reasons are to avoid probate and protect assets from a long-term care program. This article will guide you to:

When you set up a trust, you are essentially creating a fictitious person who owns your assets. Depending on the type of trust you establish, the trust may also have its own Social Security number, called a “tax ID.” Here is an example. Like most married couples, Mark and Sarah Williams own their primary residence in joint names. They decide to found the “Williams Family Trust”. Once the trust is established, they change the name on the deed to their home from Mark and Sarah to the Williams Family Trust.

Why Would You Put A House In An Llc

Why Would You Put A House In An Llc

Before looking into the benefits of creating a trust for your home, you should first understand the difference between a “revocable trust” and an “irrevocable trust.” As the name suggests, a revocable trust means you can revoke it at any time. In other words, you as the owner can take the asset back. You never “give it away.” Revocable trusts do not have a separate tax identification number. They are placed on the owner’s social security number. A revocable trust is sometimes called a “living trust.”

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With an irrevocable trust, once ownership of your home is transferred to the trust, it is irrevocable, meaning you can never take it back. The trust will own the house for the rest of your life. Now, this sounds extremely restrictive, but there are many strategies that real estate attorneys use to loosen those restrictions, some of which I will describe later in this article.

In both cases, in trust parlance, the owner who transferred the assets to the trust is called the “grantor.” I want you to be familiar with that term when I use it in this article.

So why would someone use an irrevocable trust instead of a revocable trust? The answer depends on the benefits you want to access by placing your home in a trust.

From our experience, this is the main reason people put their home in a revocable trust. Trust assets exempt from probate. If you’ve ever had a family member die and you’re the executor of their estate, you know what a headache the probate process can be. Not to mention expensive.

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Let’s go back to the example of Mark and Sarah Williams. They jointly own their home and have a will that lists their two children as 50/50 beneficiaries of all their assets.

When the first spouse dies, there is no problem as the house is jointly owned and ownership automatically passes to the surviving spouse. However, when the surviving spouse dies, the home becomes part of the surviving spouse’s estate and is subject to the probate process. Typically, efforts are made to avoid probate because the probate process:

Costs come in the form of legal fees, accounting fees, executor fees and appraisal fees required to probate the estate. The delay is because it is a contempt of court proceeding. To start the process you need to certify the letters issued by the court and the courts must approve the final settlement of the estate. It is not unusual for the probate process to take 6 months or more from start to finish.

Why Would You Put A House In An Llc

If your home is owned by a revocable trust, you will avoid the entire probate process. After the death of the second spouse, the house is transferred from the name of the trust to the trust beneficiaries. You save the cost of probate and your beneficiaries have immediate access to the home.

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I’ll stop for a moment because this is where I usually get the question, “If I have a trust, do I need a will?” The answer is yes, both are needed. Everything owned by your trust will go to the trust’s beneficiaries immediately, but any assets not owned by the trust will pass to your beneficiaries through your will. Trusts can own real estate, checking accounts, life insurance policies, and other assets. But there are some assets that are typically held outside of a trust, such as cars and personal items, that can be passed to beneficiaries through a will. But in most cases, people have the same beneficiaries listed in their will and trust.

For parents with children under the age of 25, revocable trusts are used to prevent the children from inheriting the entire estate at a very young age. If you only have one will, if both parents die when your child is 18 and they inherit a large inheritance between your life insurance, retirement accounts, and home, they may not make the best financial decisions. What if they inherited a million dollars and decided not to go to college, but spent the entire amount in 5 years? As financial planners, unfortunately, we have seen this happen. It’s ugly.

A revocable trust can put restrictions in place to prevent this from happening. The trust may have language that they inherit 1/3 at age 25, 1/3 at age 35, and 1/3 at age 35. But in the meantime, the trustee can authorize distributions for living expenses, education, health care expenses, etc. The options are limitless and these documents are customized to meet your personal preferences.

A revocable trust offers maximum flexibility to the grantor because it does not transfer assets. It is still part of your estate and is not subject to probate. At any time the owners can repossess the asset, change the trustee, change the beneficiaries of the trust and change the features of the trust.

Should I Place My Home In A Trust?

As you can see, the first two are equivalent to a revocable trust. Irrevocable trust assets avoid probate and are a way to control how assets are distributed after your death. However, two additional benefits unrelated to a revocable trust will be listed. Let’s look at the protective benefits of long-term care programs.

When individuals use an irrevocable trust to protect assets from a long-term care program, it is sometimes called a “Medicaid trust.” If you’ve ever had personal experience with a loved one needing some form of long-term care through home health aids, assisted living, or a nursing home, you know how much this care can cost. According to the New York State Department of Health, the average daily cost of a nursing home in the Northeast region is $371 per day. That’s $135,360 a year.

A person who needs this type of assistance has to spend all of their assets until they reach a very low threshold, and then Medicaid starts picking up the tab from there. Now the IRS is smart. They won’t let you go through a long-term care program and then transfer all your assets to a family member or trust to qualify for Medicaid. There is a 5-year look-back period whereby any assets you gifted to an individual or trust within the last 5 years are back on the table for spending purposes before you qualify for Medicaid. That’s why they call these trusts Medicaid trusts.

Why Would You Put A House In An Llc

Now, your primary residence is not an asset subject to the Medicaid cost reduction. If your only asset is your home and you’ve spent all other assets not included in an IRA or qualified retirement plan, you may qualify for Medicaid immediately. So why put your home in an irrevocable trust? Although Medicaid cannot force you to sell your primary residence or consider it a low-cost asset, Medicaid will place a lien on your estate for the amount paid for your care. So when you die, your home doesn’t go to your children or heirs, Medicaid takes ownership of it and sells it to recoup the money they paid for your care. Not a great result. Most people prefer the value of their home to go to their children instead of Medicaid.

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If you transfer ownership of the home to an irrevocable trust, you can live in the home for the rest of your life, and as long as the home has been in the trust for more than 5 years, it is not an expendable asset for Medicaid and Medicaid cannot object to any restriction.

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