Estate planning is an essential part of securing your financial future and ensuring your loved ones are taken care of. One aspect of estate planning that is often overlooked is the decision to add your house to a trust. This can be a beneficial move for many, particularly in the state of Washington, where specific laws apply to trusts and estate planning. However, the process can be complex and requires careful consideration and understanding.
Benefits and Drawbacks of Adding a House to a Trust in Washington
Before deciding to add your house to a trust in Washington, it's important to understand the benefits and potential drawbacks.
Benefits:
- Avoiding Probate: By placing your house in a trust, it can be directly transferred to your beneficiaries upon your death, bypassing the probate process. This can save time and money.
- Privacy: Trusts offer a level of privacy that wills do not. The details of a trust are not made public, unlike a will, which becomes a public document upon your death.
- Control: With a trust, you maintain control over the property during your lifetime and can specify how the property is managed or distributed after your death.
Drawbacks:
- Cost: Establishing a trust can be more expensive than creating a will due to the complexity of the document and the legal expertise required.
- Maintenance: Trusts require active management and the transfer of property titles into the trust, which can be time-consuming.
- Complexity: Trusts are more complex than wills and require a greater understanding of estate planning law.
The Process of Adding a House to a Trust in Washington
The process of adding a house to a trust in Washington involves several steps that must be followed accurately to ensure the property is properly transferred into the trust.
- Create a Trust: The first step is to create a trust document. This outlines the terms of the trust, including the beneficiaries and the trustee.
- Property Appraisal: It is advisable to have your property appraised to determine its current market value before transferring it into a trust.
- Title Transfer: The title of the house is then transferred to the trust by creating a new deed with the trust as the grantee. The deed must be signed and notarized.
- Record the Deed: The new deed is then recorded with the county recorder's office in the county where the property is located.
- Notify Your Mortgage Lender and Insurance Company: Finally, you should notify your mortgage lender and insurance company about the change in ownership.
Costs of Adding a House to a Trust in Washington
The costs associated with adding a house to a trust in Washington can vary based on the complexity of the trust, the value of the property, and the fees charged by the attorney or estate planning service used.
- Legal Fees: The cost of setting up a trust can range from a few hundred to several thousand dollars, depending on the complexity of the trust and whether an attorney is used.
- Property Appraisal Fees: An appraisal to determine the value of your home can cost several hundred dollars.
- Deed Preparation and Recording Fees: There are also costs associated with preparing and recording the new deed. These can range from $100 to $250 for deed preparation and approximately $50 for recording.
- Mortgage and Insurance Considerations: There may be fees associated with notifying your mortgage lender about the transfer, and it's important to ensure your property remains properly insured.
Estate Taxes in Washington
Unlike some states, Washington does impose a state estate tax. The tax rate ranges from 10% to 20%, depending on the size of the estate. However, there is an exemption for estates valued at less than $2.193 million.
It's important to note that transferring your house to a trust does not exempt it from estate taxes. The property will still be considered part of your taxable estate. However, certain types of trusts can help minimize estate tax liability.
Selling a House in a Trust in Washington
Selling a house that's in a trust is similar to selling a house not in a trust, but there may be additional steps or considerations depending on the type of trust. For example, if the trust is revocable, the trustee (which is often also the grantor) can sell the property as they would normally. However, if the trust is irrevocable, the trustee must follow the terms of the trust, which may require consent from the beneficiaries.
Adding a House with a Mortgage to a Trust in Washington
If your house has a mortgage, it can still be placed in a trust. However, it's important to notify the lender of the transfer. Under federal law, lenders cannot call in loans or raise interest rates when a mortgaged property is transferred to a living trust.
Refinancing a House in a Trust in Washington
Refinancing a house in a trust can be more complex than a standard refinance. In many cases, the property will need to be temporarily removed from the trust for the refinance to take place. After the refinance, the property can be transferred back into the trust.
Transferring a House out of a Trust in Washington
If you decide to remove your house from a trust, the process will depend on the type of trust. For a revocable trust, the trustee can prepare a new deed transferring the property out of the trust. However, for an irrevocable trust, removing property can be more complex and may require the consent of the beneficiaries or court approval.
