Probate Versus Living Trust: How You Hold Title Makes a Difference
The way in which people hold title to a property can have significant legal and tax implications, including whether the property must go through probate upon death and what taxes the heirs must pay when they sell it.
According to some attorneys, one of the best ways to hold title to homes and other real property, is in a revocable living trust, which offers the advantage of avoiding probate costs and delays. All that is involved is the cost of creating such a trust, and deeding the property into it.
Until the death or disability of the trust creator, the home and other real estate in the living trust, plus any stocks, bonds, bank accounts, automobiles or other major assets held in the living trust, may be bought, sold and financed at the creator’s discretion.
If the trustor becomes incapacitated, the named alternate trustor (such as a spouse or adult child) takes over management of the trust assets. When the trustor dies, the assets are distributed according to the trust's terms.
Privacy is also an advantage. Unlike a will, which becomes part of the public probate file, the living trust terms remain private. Court challenges of living trusts are virtually impossible, whereas wills are frequently challenged by disappointed relatives.
There are other customary ways to hold title, such as:
- Sole ownership: You hold the title in your name alone.
- Tenancy in common: This means two people own the property together, but upon the death of one, the interest of the descendent is distributed according to a will – or if there is no will, according to state law.
- Joint tenancy: This is a commonly used option, which means two people own the property together. If one dies, the other gets it without the property passing through probate. The survivor files an affidavit saying the other titleholder has passed away, attaches the death certificate and gets the property. (Some states have variations on join tenancy, so it is wise to check with an attorney.)
You should evaluate which form of title is right for your situation based on who you want to end up with your interest in the property. Consult with an attorney if you have specific questions regarding your personal or family situation.
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Source: RISMedia