Published by Kiplinger | February 8, 2022
Homes are illiquid assets that produce no income and come with ongoing costs for upkeep. Those issues can cause some snags with your trust.
A typical estate at death will include a personal residence. Many large estates also include a vacation home, farm or family retreat. Leaving real property in trust is common. Estate plans that include a revocable trust will fund the trust by a pour-over Last Will orchestrated by the personal representative.
Sometimes the settlor, the person establishing a trust, will title their home to the revocable trust, which then becomes irrevocable at death. Other times, an estate planner will recommend a Qualified Personal Residence Trust, which is irrevocable, to gift a valuable home to a trust for their children. Through this method, the house is passed over a term of years while the original owner continues to live there so that the gift passes with little or no gift or estate tax.
It is also not uncommon for a trust beneficiary to request a distribution or distributions from the trust principal to help buy a new home and assist with the costs of homeownership. These are reasonable requests if the trust can absorb these costs and still meet its other trust purposes. Other times, the trustee will be required or encouraged to purchase a new house as a trust asset when requested. Most times, trust ownership of a personal residence creates more problems than it resolves.
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