How to Transfer Property into Trust without unnecessary cost and delay to your estate
If you have ever wondered how to transfer property into trust, then by the end of today's video, you'll have a better idea of what to do. For the best estate planning, pronate and trust administration videos, subscribe to our channel, and hit the like button, the one like this, and the bell so you'll get notified every time we post a new video.
One of our videos that has gotten the most views, and I'm talking several thousands of views, is How To Transfer Property Into Trust. And one of the things I see over and over in the comment section is that we don't explain exactly how to transfer property into trust. Now, we do explain in the video that we have other videos, but today I'm going to talk about exactly how to transfer real property, real estate, your house, into the name of your trust.
The reason this has come up again is we are constantly creating new revocable living trust-centered estate plans for people, and when our clients come into us, we make sure that all of their assets are in their name of their trust. Most importantly, their house, their real estate is extremely important because if it gets left out of the trust, guess what, it needs to be probated. I have seen this come up two times already where people have forgotten or they just didn't get around to putting their real property into their name of their trust.
And it just happened again this past weekend where a nice young couple, a husband and wife, came in and they were trying to administer his father's estate.
The father actually owned three pieces of property. One of them was a rental property and one of them was his house that had land connected to it. He was very diligent in putting, as soon as he did his trust, he put his rental property and his home into the name of the trust.
Then what happened several years later is he had the opportunity to acquire the land behind his house, which made his lot even bigger and potentially worth even more money for sale later on.
Unfortunately, what happened is he took ownership of that piece of land behind his house in his personal name and he didn't put it into his name of the trust. So, guess what happened. His son and his son's wife were in my office trying to figure out what to do.
With real property, guys, if the person has already passed away, the only way to get it transferred from the diseased person's name into their heirs is to do a probate.
There's just no way around it, unfortunately. But this example is a great illustration, unfortunately, of what can happen when you don't put your real property, your house, into the name of the trust. Other examples we have seen is we have created trusts for people maybe 10 years ago or 11 years ago. At the time, we made certain that they put their real property into their name of the trust.
We actually prepare the paperwork for them. And then what happens, and we see this over ad over again, is they sell that property and they buy a new property. And when they buy that new property, they forget to tell the title company that they have a trust and that they need to make sure that they title the house in the name of the trust.
Guess what happens. Just like in the previous example, if it's not in the name of the trust, then that property has to be probated so that it goes to their heirs. And an important note to make there is that if it goes to their heirs, it may not go to the heirs that they want it to. See what I'm saying?
Maybe in the trust document it said, "My house goes to my daughter, Sally, or it goes to my son, Enrique." If Sally and Enrique are the kids and there's no will that says differently, then they're gonna get 50%. So, Sally and Enrique, instead of getting an entire pull, 100% of the real property, will only get 50%.
It's extremely important not only to avoid probate, but also to make sure that your heirs, the ones that you want to get your real property actually receive it under the terms of your revocable living trust.
If you come to our office and we prepare a revocable living trust-centered estate plan for you or you already have a trust, either by us or somebody else, and you have real estate, a house or a rental property, how do you put it into the name of the trust? We can do it one of two ways.
The first is pretty quick and easy. It's a quitclaim deed. So we simply do a quitclaim deed from your personal name to the name of your revocable living trust so that the property is transferred into the name of your trust. The other way we can do it is to actually give a warranty deed.
Sometimes people will do this if they want to make sure that they have absolutely clean title. And really, where we've seen this happen before is where the person who we're doing the trust for actually acquired the property by a quitclaim deed, and so, they wanna make sure that there wasn't anybody else in the chain of title that might have a claim.
In that case, we'll actually go to a title company and make sure that a title search is done and we'll do a warranty deed to transfer the property from the person's name to the name of their trust.
It can be done in either one of those ways. Either with a quitclaim deed or with a warranty deed. It's really just up to you. Like I say, the majority of people that we help, we just do it with a quitclaim deed, and it's a pretty easy process. We prepare the deed for you, you sign it, we have it notarized, we sign it in front of a notary, and then we take it down to the county clerk's office, and we file that quitclaim deed with the memorandum of trust, sometimes called a certificate of trust, and we put them together and we file them as one document.
By doing that, we have transferred property from your name to the name of your trust. The next question is, what kind of things should you be concerned about when you put real property into your trust? The first thing you need to look at is your mortgage.
A lot of times, mortgages will have what's called a due-on-sale clause, and that simply means that if you transfer the property in any way, then the mortgage is due and payable immediately. In other words, you transfer the property to your son or your daughter or to a neighbor. At that point, the mortgage is due immediately in full. I'm sure you can see why a mortgage company would do that.
Whether you obtained your mortgage from jumbo mortgage wholesale lenders, a mortgage broker, or a bank, it would most likely include a due-on-sale clause, which simply means that if you transfer the property in any way, the mortgage becomes due and payable immediately. In other words, you give the property to your son, daughter, or neighbor. At that point, the mortgage is due in full right away. I'm sure you can see why a mortgage company would do something like that.
If they give you a mortgage, and then a few years later you simply give the property away, the mortgage company is gonna wanna make sure that they get their money, right? So, how do we get around this?
Well, mortgage companies know that people transfer a property into the name of their trust. And so, in most cases, it really is not a big deal, but you do need to contact your mortgage company to make sure that transferring the property from your name to the name of the trust does not trigger that due-on-sale clause and require you to pay the mortgage in full at that moment.
The next thing that people need to be concerned about is homeowners insurance, or insurance on your rental properties. If you have the property insured in your name and then you transfer it to your trust, then in that case, you need to make suer that your trust is also insured under the policy.
It is a simple process of calling your insurance agent and just letting them know you now have a revocable living trust and you've transferred the property that they were insuring from your name into the name of the trust. They can usually make that change over the phone. Make sure and contact your insurance agent so that it gets done right and that you do it at the time the property is transferred.
The third thing you need to be concerned about when transferring property into the name of your trust is if it's your home, your homestead exemption. So if it's the home that you're actually, the real property that you're actually living in, you need to make sure that your homestead exemption stays in place.
Guys, this really depends on the county and the state or wherever you're living. I have found that even here in Oklahoma, in some counties, it says that as long as the person is transferring it from their name to their personal trust, then the homestead exemption stays in place.
However, I've also heard stories from other counties in Oklahoma and in other states that if you do that transfer, then that homestead exemption comes off and you have to reapply possibly at a higher number. Always check with your taxing authority before you make those changes as well. Very important.
If you have a revocable living trust-centered estate plan and you have real property, whether it's your personal home, rental home or apartment buildings, whatever it is, maybe it's your office building, and it's not in the name of your trust, then you need to reevaluate your estate plan and make sure that your property is titled correctly so that your estate plan works correctly when it needs to.
You don't want to end up like the examples that I have given where you worked really hard on your estate plan and everything that goes on around it, and you have done our annual checkups with us or with your estate planning attorney, only for your heirs to find out later that there's one property out there that is not in the name of the trust, and is gonna cost the trust, three, five, $10,000.
Don't make that mistake, guys. I know I've thrown a lot at you, so that's why we have prepared our free state planning guide. And I'll put a link to it in the description and in the comment section below so that you can download it and get started. And to help you out even more, watch this video up here and this video up here.
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