Trusts are useful financial tools, often used for the purpose of planning an estate. A trust is essentially a legal framework into which ownership of assets can be placed. These assets can include financial products like stocks and bonds, or it can include real physical property, like land, jewelry or vehicles. There are a number of reasons one might use a trust, including, but certainly not limited to, estate planning scenarios. If you think you might need a trust or you want help setting one up, consider working with a financial advisor.
How Property Trusts Work
Technically speaking, there isn’t a specific type of trust known as a “property trust.” Any trust can be filled with a myriad assets, including property and real estate. If you hear reference to a property trust, it’s more than likely either a revocable trust or an irrevocable trust. Both of these can be seeded with property, along with other assets like investments, family memorabilia and cash.
A revocable trust is one where you have the ability to add property and take it out throughout your lifetime. For instance, if you store a home in a revocable trust, you can remove it from the trust. At a later date, you can then return it to direct ownership if that makes it easier to sell. You can also remove personal effects, such as a family heirloom, if you want to pass it on to another family member. A revocable trust can also be abolished if it’s no longer necessary.
An irrevocable trust, on the other hand, is exactly what it sounds like – a trust that cannot be abolished and cannot have property removed from it. Irrevocable trusts are best used to shelter property that the current owner is not going to sell or otherwise need out of the trust.
Who Needs a Property Trust?
Trusts are most often used by those planning their estate who want to make sure that their financial legacy is carried out to their wishes. One common rumor to dispel: a trust does not protect your assets from estate taxes. If the estate is worth more than the threshold in the state where it is located or the federal estate tax limit, the applicable taxes will be assessed even if everything you own is parked in a trust.
Still, there are good reasons to consider opening a trust for the purpose of storing property. First off, it makes it easier to ensure that your wishes are followed after you die. This is because you will appoint a trustee to manage the trust after you die. This should be someone you trust, because they will be responsible for distributing the property within the trust to the correct people. You can leave money to various relatives, charities or other entities. You can also list exactly who should get various physical items.
Property trusts also make life much easier for your family after you have died. Having enough property in a trust may make it possible for an estate to avoid probate – a sometimes lengthy process states go through with an estate to assess what will happen to a deceased person’s property and settle debts. Avoiding probate means your family will have to spend less time dealing with lawyers and be able to get any inheritance they are receiving earlier.
Not everyone who is estate planning needs a trust. Those without significant assets might not need to go through the trouble and cost of creating a trust. If you have very specific wishes about what you want done with your assets or if you have a particularly large and complex estate, though, a trust may be a good idea. Once again, for questions about your own trust needs and how to fill them, you may want to speak with a financial advisor.
Bottom Line
A property trust is not technically a specific type of trust. All trusts can be property trusts if they are used to house the ownership of property. There are revocable trusts, which can be changed and terminated, and irrevocable trusts, which are permanent.
A trust isn’t strictly needed for estate planning, but it can be of use in certain situations. This is especially true if an estate is large and complex or if a person has very specific wishes about what they want to happen to their money and property.
Estate Planning Tips
- Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Even if you have a trust, you may still need to write a will. A trust stores your property, while a will actually tells your descendants what you want done with it. A will should also name a guardian to take care of any minor children.
Photo credit: ©iStock.com/shapecharge, ©iStock.com/ridvan_celik, ©iStock.com/shapecharge