Estate Planning 101

Adding a House to a Trust in Arizona

In this blog post, we'll explore the ins and outs of adding a house to a trust in Arizona. We'll delve into the benefits and drawbacks, discuss the costs involved, and provide a clear, step-by-step guide on how to navigate the process. We'll also address key topics such as estate taxes, selling a house in a trust, dealing with mortgages, refinancing, and transferring out of a trust.
April 10, 2024

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Estate planning is an essential step in securing your loved ones' future and ensuring your assets are distributed according to your wishes. One important decision you might face during this process is whether to add your house to a trust. In Arizona, the laws surrounding trusts are specific and understanding them can help you make informed decisions. This guide will walk you through the benefits, drawbacks, process, and costs of adding a house to a trust in Arizona.

Benefits and Drawbacks of Adding a House to a Trust in Arizona

When considering adding your house to a trust in Arizona, it's crucial to understand both the benefits and potential drawbacks.

Benefits:

  1. Avoiding Probate: One of the main benefits of placing your house in a trust is to avoid probate. Probate is a legal process that can be time-consuming and costly. By putting your house in a trust, it can pass directly to your beneficiaries, bypassing the probate process.
  2. Privacy: A trust is a private document and does not become part of the public record like a will, keeping the details of your estate confidential.
  3. Control and Flexibility: With a living trust, you retain control over the property during your lifetime and can change the terms of the trust at any time.

Drawbacks:

  1. Cost: Setting up a trust can be more expensive initially than creating a will because trusts are more complex and may require more legal assistance.
  2. Maintenance: Trusts require ongoing management, which can mean additional costs and time, especially if you hire a professional to do it.
  3. Complexity: Trusts are more complex to set up and manage than wills. You'll need to transfer the title of your house to the trust, which involves additional steps and paperwork.

The Process of Adding a House to a Trust in Arizona

Adding a house to a trust in Arizona involves several steps that must be followed accurately to ensure the process goes smoothly.

  1. Create a Trust: The first step is to create a trust document. This document outlines the terms of the trust, including who the beneficiaries are and what happens to the property upon your death. You can create a trust using an online estate planning service or by working with an attorney.
  2. Property Appraisal: Before transferring your property into a trust, it's beneficial to have it appraised to determine its current market value.
  3. Title Transfer: Next, you'll need to transfer the title of your house to the trust. This involves creating a new deed with the name of the trust as the grantee. In Arizona, the deed must be signed in the presence of a notary public.
  4. Record the Deed: After the deed is signed and notarized, it should be recorded with the county recorder's office in the county where the property is located.
  5. Notify Your Mortgage Lender and Insurance Company: Lastly, you'll need to notify your mortgage lender and insurance company about the change in ownership.

Costs of Adding a House to a Trust in Arizona

The costs of adding a house to a trust in Arizona can vary based on several factors, including the complexity of the trust, the value of the property, and the legal fees if you choose to hire an attorney.

  1. Legal Fees: The cost of setting up a trust can range from a few hundred to a few thousand dollars, depending on whether you use an online service or hire an attorney.
  2. Property Appraisal Fees: The cost of a home appraisal in Arizona typically ranges from $300 to $600, depending on the size and location of the property.
  3. Deed Preparation and Recording Fees: There's a cost to prepare and record the new deed. Deed preparation can cost between $100 to $250, and recording fees in Arizona are typically around $15 to $20 for the first page and $1 for each additional page.
  4. Mortgage and Insurance Considerations: If your house has a mortgage, you'll need to notify your lender that you're transferring the property to a trust. Depending on the lender, there may be a fee associated with this. You'll also need to inform your homeowner's insurance company about the transfer. While this shouldn't result in additional costs, it's important to ensure your property remains properly insured.

Estate Taxes in Arizona

Arizona is one of the states that does not impose its own estate or inheritance tax. However, you may still be subject to federal estate tax if your estate exceeds the federal estate tax exemption amount. For 2024, the federal estate tax exemption is $13.61 million for individuals and $27.22 million for married couples. It's important to note that transferring your house to a trust does not exempt it from federal estate taxes.

Selling a House in a Trust in Arizona

Selling a house in a trust in Arizona is possible and is usually a straightforward process. If the trust is a revocable living trust and you are the trustee, you can sell the property just like you would if the house were not in a trust. However, if the trust is irrevocable, the trustee must act in the best interest of the beneficiaries and the proceeds from the sale must go into the trust for distribution according to the trust's terms.

Adding a House with a Mortgage to a Trust in Arizona

If your house is still under a mortgage, you can still transfer it into a trust. However, you'll need to notify your mortgage lender about the transfer. The Garn-St. Germain Depository Institutions Act of 1982 prohibits lenders from calling in loans or raising interest rates when a mortgaged property is transferred into a revocable living trust.

Refinancing a House in a Trust in Arizona

Refinancing a property in a trust in Arizona can be a bit more complex. You may need to temporarily remove the property from the trust, refinance the home, and then return it to the trust. It's crucial to work with a lender who is familiar with this process to ensure the integrity of the trust is maintained.

Transferring a House out of a Trust in Arizona

If you wish to remove your house from a trust, the process will depend on the type of trust. If it's a revocable trust, you can transfer the property out of the trust by preparing a new deed. However, if the trust is irrevocable, removing the property can be more complex and may require agreement from all beneficiaries and potentially court approval.