Adding a House to a Trust in California

Estate planning is an essential step towards securing your family's future, and one of the most significant assets that people often consider when planning their estates is their home. In California, one common way of managing your real estate assets is by putting your house in a trust. This process can seem daunting, but with the right guidance, it can be a smooth and beneficial move for your estate planning needs.

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

Before adding your house to a trust in California, it's important to understand the potential benefits and drawbacks involved.

Benefits:

1. Avoiding Probate: One of the main advantages of placing your house in a trust is the ability to avoid probate. Probate can be a lengthy and costly process. By adding your house to a trust, it can pass directly to your beneficiaries upon your death, bypassing probate.
2. Privacy: Unlike a will, which becomes public record after your death, a trust remains private, keeping the details of your estate confidential.
3. Control: With a living trust, you retain control over the property during your lifetime and can change the trust terms or revoke the trust at any time.

Drawbacks:

1. Cost and Complexity: Setting up a trust can be more costly and complex than creating a will. This is due to the legal assistance often required to establish and manage a trust.
2. Maintenance: Trusts require ongoing management, which could mean additional time and costs, especially if you hire a professional to manage the trust.
3. Title Transfer: Once the trust is set up, you'll need to transfer the title of your house to the trust, which can be a complicated process.

The Process of Adding a House to a Trust in California

Adding a house to a trust in California involves several key steps, which must be followed accurately to ensure a successful transfer.

1. Create a Trust: The first step is to create a trust document. This outlines the terms of the trust, including the beneficiaries and what happens to the property upon your death. You can create a trust using an online estate planning service or by hiring an attorney.
2. Property Appraisal: Before transferring your property into a trust, it's recommended to have it appraised to determine its current market value.
3. Title Transfer: Next, the title of your house needs to be transferred to the trust. This involves creating a new deed with the trust's name as the grantee. In California, the deed must be notarized.
4. Record the Deed: Once 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 should notify your mortgage lender and insurance company about the change in ownership.

Costs of Adding a House to a Trust in California

The costs associated with adding a house to a trust in California can vary based on several factors, including the complexity of the trust, the value of the property, and the fees of the attorney or trustee.

1. Legal Fees: The cost of setting up a trust can range from a few hundred dollars to a few thousand dollars, depending on whether you use an online service or hire an attorney. If you opt for an attorney, you can expect to pay an hourly rate, which can range from $200 to $500 per hour.
2. Property Appraisal Fees: A professional appraisal can cost between $300 and $400, but can be higher for larger or more complex properties.
3. Deed Preparation and Recording Fees: There will be a charge to prepare and record the new deed. Deed preparation costs can range from $100 to $250, and recording fees in California can vary by county.
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. Additionally, you'll need to inform your homeowner's insurance company about the transfer. Although this shouldn't result in additional costs, it's essential to ensure your property remains properly insured.

Estate Taxes in California

California does not have its own estate or inheritance tax, which means that regardless of the size of your estate, you won't have to worry about the state taking a portion of it upon your death. However, the federal government does impose an estate tax on estates exceeding a certain value. For 2024, this value is $13.61 million for individuals and $27.22 million for married couples. Transferring your house to a trust does not exempt it from federal estate taxes. The property will still be considered part of your taxable estate. However, certain types of trusts, such as an irrevocable trust, can help reduce or even eliminate federal estate tax liability.

Selling a House in a Trust in California

Selling a house in a trust is entirely possible and fairly straightforward, but the process can vary depending on the type of trust you have. If the trust is a revocable living trust, and you're the trustee, you can sell the property just as you would if the house were not in a trust – by listing it, finding a buyer, and closing the sale. The proceeds from the sale would then go into the trust. However, if you're not the trustee, or if the trust is irrevocable, things can be a little more complex. In this case, the trustee does have the power to sell the property, but they must always act in the best interests of the beneficiaries. The trustee would carry out the sale process and the sale proceeds would go into the trust for distribution according to the terms set out in the trust document.

Adding a House with a Mortgage to a Trust in California

If your house is still under a mortgage, you can still transfer a mortgaged house into a trust. In California, lenders cannot call in loans or raise interest rates when a mortgaged property is transferred into a revocable living trust – this is protected under the Garn-St. Germain Depository Institutions Act of 1982. However, it's crucial to inform your mortgage lender about the transfer. Failure to do so could potentially lead to complications down the line. Some lenders might request a copy of the trust agreement to verify that it is, indeed, a revocable trust and that you are the trustee and beneficiary. On the other hand, transferring a mortgaged property into an irrevocable trust can be more complex and may require the lender's approval.

Refinancing a House in a Trust in California

Refinancing a property held in a trust can be a bit more intricate than a standard refinance. However, it's certainly not impossible and can be done with proper guidance. Most lenders want to deal directly with the property owner. When a home is in a trust, the trust owns the property, and this can complicate the refinancing process. Many homeowners with properties in a trust successfully refinance their homes. They typically have to temporarily remove the property from the trust, refinance the home, and then put it back into the trust.

Transferring a House out of a Trust in California

There may come a time when you wish to remove your house from a trust. The process for doing so will depend on the type of trust you have. If your house is in a revocable trust, the process is generally straightforward. As the trustee, you have the authority to transfer the property out of the trust. This involves preparing a new deed that transfers the property from the trust to your personal name or to a new owner. The deed must be signed, notarized, and then recorded with the county recorder's office. However, if your house is in an irrevocable trust, removing it can be more complex. This type of trust cannot be altered without the consent of the beneficiaries. Therefore, transferring a property out of this type of trust typically requires agreement from all parties involved and may require court approval.