Common reasons for ownership in a trust?

Question

I notice a decent amount of homes in my area have a trust listed on the title as the owner. This was surprising to me. What are the most common reasons average, non-investor folks would have their home owned by a trust? Are these signs of probate or divorce?

Account Closed · Answer

Even in the lower-end markets in CA you'll see a lot of properties held in a trust. It's quicker, easier and cheaper than allowing your property to be probated. For people who are clear about disposition of their assets upon death and who are clear about their beneficiaries (heirs), setting up a trust is a no-brainer. It can be super cheap to set up a simple trust compared to court fees and attorney fees. Attorney fees for probate in CA are statutory and start at 4% of the first $100K (value of estate at time of death). There's a saying in my farms by the good estate attorneys and it goes something like this: "If you want to **** over your kids, be sure to leave a will." A will, without a complete estate plan, could be the worst and most costly thing you can do to your estate and your heirs.

Lots of people transition to owning their real property in a trust in their senior years and/or upon the death of a spouse.

John Thedford · Answer

WOW! Now THAT is interesting. Now that I know the right terminology when I talk to my CPA he will understand as well what I am talking about. Thanks for the info. Awesome!

John

Steven Hamilton II · Answer

John Thedford,

You really do need to talk to an attorney about this topic.  From a tax standpoint you can give your S-corp interest to a "living trust"  Which does not affect your situation until such time as you pass away.

-Steven

John Thedford · Answer

OK...so..if they were equal would you leave them in the S corp or put them in a trust? I believe the trust would make things a lot easier on my beneficiaries...

John

Steven Hamilton II · Answer

John Thedford,

I made a mistake in my message above.  That was meant to read S-corp instead of trust.

-Steven

Rick H. · Answer

These threads would appear to treat 'trusts' generically, as if all are the same.  Here are a couple of observations that I've made:

Virtually no two trusts are identical.  Most all are drafted for the grantor(s) but may have widely varied objectives.  Asset protection ain't one of them.  Privacy, yes, in that the identification of beneficiaries is not typically public, with the exception of Arizona statute.

Due to the wide variety of trust objectives, you cannot assume that they will follow a given pattern.  Most are intended as simple estate planning devices, but most simple trusts offer no tax saving benefits unless more sophisticated estate planning strategies are employed.

You will, occasionally, see mortgage loans made to trustees of trusts, at least in my state, CA.  This has been my business for over two decades and I routinely lend to fiduciaries, private and public, personal and commercial, without the need to vest title individually or sign co-guarantor agreements.  There were also a handful of loans to trusts made by WaMu and a few other extinct banks during the mid-2000's period of loose/cheap money.

Title holding trusts, of the sort commonly used by real estate investors in my area, offer first level privacy for investor types and convenience of administration, but no real asset protection.  I know because in every real estate lawsuit  that I've been in, it's been pretty easy to track the money.

I might mention that trusts are not the panacea that everyone seems to think they are. Plenty of families come to me with trusts that were poorly drafted or just not practical to administrate.  I love messes, including messy trusts and feuding families, beach bums, ne'er-do-wells and foreclosure.  Fortunately, we live in a society that continues to supply my business with an abundance of liquidity opportunities.

John Thedford · Answer

Steven: you lost me. They are in an S corp. If I take them out of the S corp that would be a distribution out of the corp. I have a trust with high value collectibles..not the real estate. Would I be better off putting these into a trust. I have a contact in to purchase another property..put it in the trust..or add it to the S corp along with the other ones?
Thanks!
MGJohn

Steven Hamilton II · Answer

John Thedford,

That is not necessarily true. Being that you probably have a significant basis in the trust you could make a distribution that would only lower your basis and not be taxable.

-Steven

John Thedford · Answer

I just bought 3 properties. I put them into my S corp. That might have been a major mess-up! I was told that gave me some protection in case of a lawsuit, etc. I am aware of trusts but never considered that as an option though I have some high value collectibles that are in a trust. If I take these out of the S corp I will probably get slaughtered at tax time. Suggestions?
Thanks!
MGJohn

Bill Gulley · Answer

I doubt you'll find a trust as the borrower by itself, :) especially 132 walnut street trust.

Common reasons for ownership in a trust?

Most Popular Reply