Recently I responded to the above question on a local neighborhood website. Why a person was asking a bunch of neighbors a legal question, I have no idea. Far be it from me to get into the legal weeds regarding general reasons one should or should not set up a trust. However, having helped dozens and dozens of families with inherited property, I feel qualified to address the part of this question that deals with real estate.
When asked the above question, most people respond by saying it avoids probate. I know very little about probate per se so I will leave it legal experts to comment on that. What I do know very well is the ease or difficulty of selling a home with a will vs with a trust. I will say without a doubt, a trust makes the home sale much easier!!!!
In a trust there will be a “Successor Trustee (or Trustees)” who will be responsible for executing the orders in the trust. This person is clearly defined in trust document and has full authority to act.
In a will, the person with authority to act is the executor. However, sometimes, depending on the wording in the will, an executor may or may not have authority to sell the home. Usually there is no ambiguity but once in a while it is not clear.
Let’s step back a minute and look at things from the title company’s perspective. They have one job which is to make sure the property is transferred according to the terms of the contract and done so legally. If they have the slightest doubt as to who the sellers may be, they will require signatures from anyone and everyone they think could possibly be a legal seller. It is never a problem having too many signatures. It is a huge problem having too few. Title companies will operate under the more is better philosophy if there is any doubt.
Say the deceased had 5 children who do not get along. The will says one of those children is the executor. But something is a little fuzzy in the wording and the title company, in an effort to protect the buyer, decides all 5 children need to sign. Well, things could get messy quickly.
Go to a different title company, you say, and see if they interpret the wording in the will a little differently. Well, you can’t. In Virginia, by law, the title company is selected by the buyer and that law is in place for situations just like this. Buyers need to be 100% certain they are getting clear title and do not want a seller title shopping so their unclear situation is ignored.
I have never seen a question on signing authority with a trust. I am sure it could happen but I have not seen nor heard of such a case.
So, a trust is best. A will is a little weaker but no will or trust is often a huge problem. Please, please, if you don’t have one or the other, get one now. It is not for you. It is to help your loved ones navigate the paperwork and forms and filings associated with the business part of death. Disposition of real estate can and should be an easy part of this but with no will or trust and unclear instructions, heirs can get testy and there is unneeded pressure on the family.
Some people say that setting up a trust is too expensive. Yes, the costs can vary and it may stretch a budget. But again, this is not for you. It is for your family. It makes their job easier and helps keep peace among the heirs and beneficiaries. Plus, when selling real estate there is a cost savings for your heirs if a property is sold in a trust.
For the purposes of this post, it is too complicated to go into the reasons why, but know that if a property is sold within a year of the owner’s passing AND the heirs want the proceeds before the one year anniversary of the death, the sellers must pay a bond premium to the buyer’s title insurance company for the funds to be released. Alternatively, the proceeds stay with the title company until 1 year and 1 day after the date of death.
That premium is $2 per thousand of the sale price. That applies to all properties sold when there is a will or no will but NOT when there is a trust. So for a $750,000 property, there would be $1500 bond premium if it is being sold via a will but no premium if there is a trust. That $1500 will certainly offset some of the cost of the trust.
The last point I want to make on a trust vs a will is not necessarily a real estate reason but an important one nonetheless. Trusts are private. Wills are in the public record.
When I put a property on the market, I need to see the will or trust or at least the parts pertaining to real estate. I need to make sure I have all the right people signing the docs. If the deceased had a will, I can look that up in the courthouse records. If a trust is involved, all I see at the courthouse is some boiler plate will that in essence says, final instructions are in the trust. I can never see the trust unless the Successor Trustee gives me a copy.
Based on some of the things I’ve seen in these wills and trusts, it is usually a good idea to keep the info private.
A reminder that if you do have a trust, you need to put the property in the trust. If you don’t sign a deed from you to the trust, none of the above will apply. It is like a garage. A garage can’t protect your car unless the car is in the garage.
I am sure there are many more reasons why a home and other assets should be in a trust. But, maybe there is a reason specific to your situation that indicates a trust is not in your best interests,. That can only be answered by a legal expert. Don’t take any action on anything in this post without getting legal advice.
For general matters, I am always happy to take a call or answer an email. Let me know if you have any questions or comments.