Maybe you have a will, but all wills in Arkansas go through the probate process. You might have heard that probate can be complicated, time consuming and expensive. It could even reduce the size of your estate and thus what your loved ones will inherit.
You want to avoid having your most valuable property, such as your home, go through probate. One way to do so is to place your home in a Qualified Personal Residence Trust, rather than in your will.
What is a Qualified Personal Residence Trust?
A Qualified Personal Residence Trust is an irrevocable trust, meaning that once you place the title of your home in the trust, you cannot take it back. It belongs to the trust, will be managed by the person or professional you select as trustee and then will be distributed to your trust beneficiaries.
Many people choose their children as beneficiaries of their Qualified Personal Residence Trust. This way, the home stays in the family and it gives your children the opportunity to use trust assets to purchase a home of their own.
While you are alive, you can keep living in your home, even though it is in a trust. This way, the home or distributions from the trust pass on to your children without subjecting them to the gift or estate tax. Your trust can include other assets, such as a retirement account or other funds.
Your children, as beneficiaries, can ask for a distribution from the money in the trust. They can use this money to buy a house of their own. Requiring beneficiaries to purchase a home out of trust assets, however, is uncommon.
The trustee’s role
Trustees of a Qualified Personal Residence Trust must act prudently, or they could be sued by the trust beneficiaries.
If a beneficiary requests a distribution to buy their own home, the trustee must account for the costs of homeownership such as property taxes, insurance, maintenance and utilities when making distributions.
To not do so would be imprudent. Therefore, sometimes a trustee asks the beneficiary to share in some of these costs. Trustees can employ even more complex tactics when appropriate.
Is putting your home in a trust the best option?
Putting your home in a trust allows it to avoid probate and provides a means for your children to draw from the value of the home and other trust assets to purchase their own home.
However, having your home in a trust makes the role of trustee more complex. Your home’s value will only be available if it is sold or mortgaged. Plus, there are trust fees and administrative costs. In addition, it could expose other trust assets to unwanted consequences, such as judgments from creditors, divorce and bankruptcy.
Ultimately you will want to discuss putting your home in a trust as part of your estate plan with a legal professional. For some people, it is the right choice to avoid probate and provide for their children while others will find the costs and complexities not worth it.