As an estate planning attorney, I hear this question posed often, and it is a good one to ask. All of us have a natural tendency to want to protect ourselves and what and who we love from the unseen, the unknown, and the possibility of disaster.
If we own a personal residence, it is often our largest asset along with our retirement accounts. Putting money into retirement savings and real estate are incredible ways to build wealth and security and they need to be ‘safely harbored’ from risk. The federal government has rules and restrictions in place to safeguard our retirement accounts until we need them at the end of our work lives, but real estate is a different kind of ‘piggy bank’; its value increases (hopefully) and the appreciation (equity) is often available for us to access at will – but is it also accessible to creditors.
This is not a blog about bankruptcy or homestead protections (which, by the way, allow Colorado filers to protect up to $75,000 of their real property value, or $105,000 if you are over 60 or disabled). Nor is it an article about taxes (which, by the way, allow you to exclude up to $250,000 ($500,000 for married people filing jointly) of the gain from selling your home from taxes).
Nope, this article is about whether it makes good sense to create a revocable living trust and transfer your primary residence into it. Equivocating attorney answer: it depends.
What does it depend on? There are several things to consider, but among the top reasons:
Not included on this list: your desire to protect your home equity from creditors. Why not? Because transferring your home into a revocable living trust will not protect it from creditors.
So, why place your home in a living trust? Probate process gets a bad rap, often deservedly, but Colorado probate law is relatively less onerous than many believe. You can transfer title to a home through our state probate process without excessive time and expense. But, transferring title to a home owned within a trust to your heirs is much easier, quicker, not public, and doesn’t require probate court oversight. Yes, a revocable living trust (RLT) costs money to prepare, you need to fund the trust (i.e. transfer title to house into the trust’s name), you need to have a trustee manage the trust (most often, you will be the trustee of your own trust), but an RLT might provide an appropriate solution for your ultimate goals of planning ahead.
So, compare the pros and cons of trust home ownership and let us know if we can help you with your legal needs and goals. Our estate planning team is happy to be of service to find the best estate plan for you and your family.