My wife and I own one home and the deed is in her name. We recently formed a Revocable Living Trust and I have been pricing lawyers (lawyers are required to do alter deeds in Pennsylvania) to change over the deed into the name of our trust. I asked my father who he used and he said that he was told not to put real estate, at least not your primary residence, into the name of the trust. Do you have any idea why this would be? This goes against what Suze Orman says and that makes me nervous!
I would love to save the legal fees but I don’t want to save a little now for what could be a big headache later. Do you have an opinion or reason for or against putting your primary residence real estate into a revocable living trust?
Jeff R., Pennsylvania
Straightforward Answer: Suze’s probably right for you, but not 100% of the population.
By and large, I agree with Suze’s advice on this issue. However, in my opinion, her “trusts for everyone” is not for 100% of the population. Certain people should have a revocable trust. For example, people in California, people who own assets in states other than the state in which they live, and people who have a step-family should each make the establishment of a revocable living trust a priority. However, those 20-somethings out there with no family yet are better served saving their precious dollars for a myriad of higher priorities (including an emergency fund, a Roth IRA, and a down payment for a home) more important than optional legal fees.
The principal advantage of the revocable trust is the avoidance of probate (a potentially expensive, lengthy and complicated court process) and the flexibility it provides those who establish the trust. However, the probate process (costs and delays) varies significantly by state. So while California is reported as nightmarish, Texas is apparently not too terrible. So keep that your resident state in mind when balancing the pros and cons of undertaking the effort and expense.
Another consideration is the fact that, in some states, the transition of your home to certain trusts could eliminate your homestead exemption, a designation that saves you serious cash on your real estate taxes. (This may be what your father’s advisor was referencing, Jeff, but I wasn’t there of course and I am not sure of the state laws applicable in Dad’s case.)
Aside from the legal costs incurred in establishing a revocable livin trust, the negatives are fairly inconsequential, especially since everything about a revocable trust, by definition, can be changed. It’s just not the first place to start financial planning.