Buying property in the name of a trust can have its benefits, and its drawbacks. By purchasing the property in a trust, you simply hold the property for your own benefit, and the benefit of your named successor. You become the trustee of the property, and upon your death, your named successor becomes the trustee. In a trust document, you can also name your beneficiaries. Here are a few of the benefits, and drawbacks of buying property in the name of a trust.
Pros of Buying Property in the Name of a Trust
Privacy – You can purchase property in the name of a trust, and retain complete privacy over who your beneficiaries will be. The only name that appears on the title to the property is the trustee. This makes it possible for you to purchase property without having your name show up as well, since the title is in the name of the trust, and not yours.
Avoiding Judgments and Liens – If there is a judgment or lien made against any beneficiary in a trust, it is not attached to the trust as it would be an individual owner. Even if the lien is from back taxes, it would not effect the trust, only its beneficiary.
Avoidance of Probate – When property is passed down via a will or in joint tenancies, the process must go through probate. This is not so with a trust. This helps avoid the court’s opinion in who takes control of the property, as well as saves in legal fees and time.
Cons of Buying Property in the Name of a Trust
Taxes – Trusts are taxed at a rate of 40%. For some, this may make buying the property as an individual a much better deal. Trusts are actually subject to the highest possible inclusion rate. If the property is sold, 66.66% of the net gain must be included in the taxable income of the trust for that year. Individuals are only subject to half of that inclusion rate.
Lack of Control – The founder of a trust may not have all of the control over the property that he or she wishes. The trust is actually the legal owner of the property…the trustees have the power to administer it.
So there are good reasons to buy property in the name of a trust, and good reasons not to. In order to decide what is best for you and your family, you should speak to an experienced real estate lawyer. Your closing lawyer can help you go over these and other pros and cons and make the best decision that you can. If you have questions about buying property as a trust, or other real estate issues, give us a call today.